An interest rate swap (IRS) in which the floating rate leg is linked to a bear spread position, such that the floating rate payer can more than proportionately benefit from any decrease in interest rates, while placing a cap on interest rate upward movement. This swap imitates the characteristics of a superfloater bond for the construction of the floating rate leg. The fixed rate payer receives, in return, a multiple of LIBOR less a specified constant.

For example, a floating rate payer seeks protection against potential rate increases, and at the same time contemplates the possibility of gaining from a corresponding position to that end. The floating rate payer (e.g., a borrower) could enter a superfloater swap where the borrower pays a fixed rate and receives a floating rate (such as LIBOR) insofar as interest rates remain within a range bounded by an upper and lower strike rate, on either side of the fixed rate.

The superfloater swap provides investors with a structure that effectively combines a long cap and a short floor. That means, the effective fixed rate achieved under this swap increases as rates break out below the lower strike rate, and decreases as rates exceed the upper strike. The superfloater multiplier determines the basis points of floating rate payment. That is, for a double multiplier, the borrower receives, for every basis point above the upper strike, two basis points. On the contrary, if the floating rate decreases below the lower strike, then the multiplier falls at a preset rate.