A floater (floating-rate note/ FRN) whose principal never matures, i.e., it doesn’t have a redemption payment and only makes perpetual coupon payments, which are reset periodically on a fixing date by reference to a benchmark rate such as 3- or 6-month LIBOR. This instrument delivers floating-rate cash flows as long as the issuer remains in business (virtually, forever). The coupon is reset and paid on a periodic basis by adding a specific spread to the reference rate.

Perpetual floaters are conventionally relied upon by financial institutions, such as banks, as a source of primary capital. In other words, although perpetual floaters are essentially debt instruments, the perpetual feature bestows on them the nature of equity. In general, perpetual floaters are classified by financial institutions as equity or quasi-equity.