An off-market interest rate swap in which the fixed payments are below the market rate. At the end of the swap the shortfall is made up by one large payment. Companies may use this type of structure to reduce interest rate payments during completion of a project. The more these payments are discounted, the more credit risk is taken by the counterparty. At the extreme, fixed payments can be set to zero resulting in a larger balloon payment on the maturity date. This is known as a zero coupon swap.
