An asset swap in which one counterparty delivers a risky asset (bond, floater, etc) to the other in return for par value. In other words, one counterparty receives the cash flows (fixed coupons) of a risky bond in return for regular payments of a floating rate (LIBOR) plus a preset spread (or minus a preset spread if the asset’s quality exceeds that of LIBOR, such as a U.S. Treasury security). The preset spread is commonly known as the asset swap spread (ASW). The payer of the fixed coupon is required to pay the asset swap spread (as an additional amount) to compensate for the credit risk assumed by the other counterparty and to repay any difference in price if the underlying bond is diverting from par.