A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:

Question

Quizplus · Accepted Answer

If the corporation believes that interest rates will be declining, they would want to switch to floating-rate debt as the interest payments on this debt are linked to market interest rates, which means that if interest rates decrease, the corporation's interest payments would also decrease. This would result in cost savings for the corporation as compared to the fixed-rate debt where the interest rate is locked in for the long term.

A Corporation with Long-Term Fixed-Rate Debt Might Prefer Floating-Rate Debt