A credit spread that constitutes an amortized premium for a default-based product (such as a credit default swap, credit option, etc.) that pays par minus recovery on the underlying asset upon default. More specifically, the protection buyer makes regular payments of default swap spread to the protection seller between the trade date and default or maturity. Following the credit event, the protection seller would either pay in cash (cash settlement) or in kind (physical settlement):

Cash settlement amount = par – recovery rate

In physical settlement, the protection seller buys the underlying asset (bond) from the protection buyer for its par. In this case, the latter is said to have guaranteed the par value of its bond which currently sells below par.

This spread, ignoring the funding and repo effects, would be the economic equivalent of a par floater spread.