Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offestting cash or bonds are removed from the balance sheet.
A financing technique used by large companies to borrow money without showing it on their balance sheets. The funds borrowed by the company are used to buy government securities and the income from such securities is used to meet the servicing costs of borrowing. Both the initial borrowing and the securities purchased with it are then tied up in a trust external to the company’s balance sheets. Français: Defeasance Español: Anulación, revocación
Fannie Mae's Defeasance option gives the borrower a choice in lieu of yield maintenance when a property is released from the mortgage lien prior to maturity. The property release does not interrupt the original expected cash flow to investors in securities backed by mortgages. Defeasance reduces the risk of reinvesting prepayment proceeds in an uncertain interest rate environment.
A pre-payment penalty utilized by many conduit lenders. This permits the borrower (debtor) to offset and eliminate the liability with the purchase of (usually) government securities in a quantity determined by the lender. The goal of the lender is to maintain the yield provided by the loan that is being paid off. EFFECTIVE GROSS INCOME Gross income of a property if fully rented less an allowance for estimated vacancies. Please note, if property occupied at less than 100%, but at accepted area occupancy level, Gross Income and Effective Gross Income would be the same.
Arrangements whereby a set of debt liabilities are held against a set of assets with closely matching and offsetting cost and risk characteristics.
In corporate finance it is generally the discharge of old, low-rate debt without repayment prior to maturity. The corporation replaces it with newly issued securities with a lower face value buy paying higher interest or having a higher market value. The technique can result in tax and balance sheet advantages.
the lender replaces the cash flow of the original loan with actual treasury securities. The borrower repays the lender enough money to buy these securities and the lender buys a combination of bonds to replace the yield lost when a loan is paid off. Once these bonds are purchased the lender releases their collateral in the property.
The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet.
a clause in a mortgage that gives the borrower the right to prepay a commercial mortgage by purchasing US Treasuries in an escrow account to pay off ongoing debt service.
A form of prepayment penalty for which the borrower is required to purchase and deposit with the lender substitute collateral, such as a Treasury security that matches the principal and interest payments of the prepaid loan and thereby sufficiently services the debt of the prepaid loan.
Used in connection with a bond issue, describes the amount of risk faced by holders of the bonds. A fully defeased issue means that principal and interest are at complete risk of loss
US Treasuries or other securities of a federally supervised or controlled instrumentality replace real property as Note's collateral.
In defeasance, the lender replaces the cash flows of the original loan with actual Treasury Securities. The borrower pays the lender enough money to buy these securities and the lender goes out in the bond market and buys the right combination of bonds. After this is done, and the lender has a security interest in the treasuries, the property is released as collateral for the loan and the treasuries become the new loan collateral.