See: IOU. Cue the Barney theme song: "IOU, UOMe. We're a happy family..."
Yes, that's how it works in a liability swap. Your debts become mine; mine become yours.
A credit swap involves trading the proceeds from an investment in a debt obligation. You hold a 10-year bond paying a fixed rate of 5% a year. Meanwhile, your cousin has a 10-year floating-rate bond currently paying 4%, but with the ability to move around as general interest rates move. You make a trade. All the cash you earn from your bond goes to your cousin. All your cousin's proceeds go to you. You don't actually trade ownership of the bonds...just the amount earned from the investments.
Okay, so that situation represents a credit swap. A liability swap works under the same premise, only with money you owe instead of money you earn.
Imagine the other side of the credit swap situation. That 5% fixed rate bond was issued by Steady Payment Corp. Meanwhile, Changing Times Inc. issued the floating-rate bond your cousin bought. Those companies enter a liability swap. Now Steady Payment will pay the amount owed to your cousin and Changing Times will pay the amount owed to you. They are doing a criss-cross of who pays whom...a liability swap.
Related or Semi-related Video
Finance: What is liability?3 Views
Finance allah shmoop What is a liability What is it
it's what you owe you bought four million gumballs on
credit for your party pack for the parade the money
is owed to gumballs are us in ninety days that's
a short term liability Alright next example you borrowed eighty
three million dollars to set up your new do dental
drive through service and that money is due in twelve
years at seven percent interest a year that's A long
term liability Why long term Because it comes due in
over a year and that's basically it liability comes in
two flavors short and long term and it's one of
the key elements of the balance sheet as it lives
in this space ride over here So yeah that's a
liability all this crap time now considering how many gumballs
you've consumed in the past month you really should get
yourself to a good drive through dentist or maybe sleep 00:00:56.998 --> [endTime] in mr
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