Subsidized Swap

An interest rate swap in which the fixed rate is below the market rate. However, if rates rise above a certain trigger level, the fixed payer will pay floating rate set below the then prevailing rate. The result is a below market fixed Interest Rate Swap that reverts to a below market floating rate when a certain trigger rate is reached. The Subsidised Swap is created by combining a pay fixed Interest Rate Swap with a sold Interest Rate Cap. The cap premium is used to reduce the fixed rate paid under the swap.