I’m a little lost on where the issuer receives FP but then is supposed to use the proceeds to purchase 1.5 FP face of a fixed rate bond, are they buying junk below par or something? Or are they having to put up 0.5 FP from their own capital? For example if they issue a 1.5x LIBOR floater for $100mil, how are they able to use the proceeds to purchase a non zero coupon bond for $150mil face with only $100mil?
If the bond is non zero and its coupon is less than the YTM or market rate then the bon should be traded at discount . so maybe it can work as long as the coupon is lower that YTM.