droplock bond

(redirected from Droplock Bonds)

Droplock Bond

A floating rate bond that changes into a fixed rate bond if the interest rate on which the floating rate is based falls below a certain level. If this conversion occurs, the bond remains at the fixed rate until maturity. This is designed to protect the bondholder by providing a guaranteed minimum coupon, but it also protects the issuer because it locks in a fixed rate under certain circumstances, no matter how high interest rates go after those circumstances. See also: Floor, Convertible bond.

droplock bond

A floating-rate bond that automatically converts to a fixed-rate bond if the interest rate used to peg the floating rate falls to a predetermined level. The new fixed rate stays in place until the droplock bond reaches maturity.