What is an Asset Swap?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 October 2019
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As a means of helping the cash flow of a company function more efficiently in relation to the current liabilities held by the organization, the asset swap is a great way of utilizing interest rates to best advantage. The asset swap involves creating a package that includes some sort of cash credit medium or asset and a swap of assets equal in value to create a floating interest rate instrument. More simply, in an exchange of assets, a fixed asset is manipulated to become a floating asset.

Sometimes referred to as an asset exchange, the asset swap is particularly useful with interest bearing bonds. Using the asset swap method to exchange two different types of bonds can create what is referred to as a gross spread. This gross spread is arrived at by calculating the values of the cash flow from the bond, assuming zero rates are applied to the bond. With the number amount of the gross spread applied to the value of the bond that is being used in the swap or exchange, this creates a situation where the computed value of the bond becomes equal to the market price that the bond can currently command.


The application of an asset swap can be helpful when there is a desire to bring the current liabilities of the company more closely in alignment with the value of the assets controlled by the organization. Employing this strategy when preparing to seek additional financing for a merger or an expansion project will help to make the company more attractive to lenders. Overall, the positive aspects of the current portfolio of assets will be more visible, as well as demonstrate the proficiency of the financial team to make the best use of those assets. With the implication that both the finances of the company and the personnel who control those finances are up to the task of repaying the loan on time, obtaining financing is an easier process.

While an asset swap is not necessarily the most productive financial strategy in every situation, checking into the possibility of using this method to maximize the efficiency of all assets as they relate to company liabilities is certainly worth the time and effort. At the very least, an attempt to prepare for a potential asset swap will make it necessary to thoroughly review the status of each of the assets currently in the control of the company. A clear understanding of the current financial condition of the corporation is always helpful, and may lead to the conclusion that an asset swap is in the best interests of the corporation.


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