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Accreting Swap
Definition
This is a type of swap where the notional amount increases over the life of the swap. This will occur sometimes according to pre-defined goals or milestones.
Using the term Accreting Swap :
This is one of the many types of swaps available in the institutional marketplace. From a practical standpoint, a construction company or an industrial company working on a project in stages (like building a ship) may wish to arrange an accreting swap. As more capital is required for the project, the notional value of the swap increases over time at pre-defined stages or time intervals in order to finance each stage of production.
Pay Special Attention To :
Counterparty risk is always very important with swaps. Be sure the counterparty you are dealing with is on sound financial footing before entering into a swap agreement with the other party. If you are owed a payment on the swap then you bear the counterparty risk. If they default, you lose.
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Related terms
Counterparty Risk , Swap , Derivatives
