When is a company likely to prefer issuing floating rate debt?

A company is likely to prefer issuing floating rate debt when interest rates are falling because floating rate debt has interest payments that adjust based on a benchmark rate, such as LIBOR or SOFR. When interest rates decline, the interest payments on floating rate debt also decrease over time. This could lead to lower borrowing costs compared to fixed-rate debt, which locks in a higher interest rate regardless of market conditions.

By issuing floating rate debt during a period of declining interest rates, a company can benefit from the lower interest expenses that accompany falling rates as its payments will decrease and align more closely with current market conditions. This flexibility can be advantageous for budget management and overall financial strategy.

In contrast, if interest rates are stable, rising, or if the company seeks to maximize predictability in cash outflows (which is generally achieved with fixed income), floating rate debt may not be the most suitable choice.