I'm currently taking a finance module and we're discussing the "Off-Market currency swaps" that was used by Greece. However, I'm having a really hard time comprehending the situation.

The following text (what's in bold is what I don't understand) and diagram is what imy referring to:

“A more common type of off-market rate derivative transaction occurs when a debt office enters into a domestic IRS by receiving-fixed and paying-floating rates but asks that the fixed payment be lower than the swap market rate. This implies that the swap is not valued at zero, having instead a negative value for the sovereign borrower. To complete the deal, the debt office will either need a lower (in algebraic value) spread on its LIBOR-linked payments, or will ask to be compensated immediately with an up-front payment.

The two alternatives are very different. In the first case, the remaining value of the swap is amortized over the life of the swap as a greater gain for the treasury, which compensates more or less equally over the life of the transaction for the lower fixed rate received with respect to the market rate. In the second case, up-front payments, if not amortized, might constitute operations meant to avoid the accrual principle for the purpose of window-dressing.”

Thanks!