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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.