A swap (a bond swap or a broadly an asset swap) that entails the exchange of an underwater asset (a bond, CDO, CLO, etc.) for an above-water (hard) asset of the same value (par value). This type of swap allows entities and investors (holders) to remove an underwater asset from their balance sheet (so it becomes off-balance sheet), at a low cost, if any at all. Furthermore, the holders, mainly for liquidity purposes, can sell the underlying asset of the swap on the market, realizing its full value.

The counterparty to the swap can, in turn, benefit from the potential to earn a good return, considering that the counterparty will be under no requirement to pay much for the swapped asset.

The underlying asset might also be a sub-prime mortgage or any similar product. In which case, this swap would bee referred to as a sub-prime mortgage swap.