defeasance


Also found in: Dictionary, Thesaurus, Legal, Wikipedia.
Related to defeasance: Legal defeasance, In Substance Defeasance

Defeasance

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. In securities trading, where a clearing house becomes counterparty to each side of a trade, after the trade has been agreed. This is necessary to facilitate netting, and reduce counterparty risk exposure. The term has become popular recently, because of the growth of central counterparty clearing services in European cash equities markets.

Defeasance

1. A provision in a loan or bond removing it as a liability on a balance sheet if cash or a portfolio is set aside for debt service. Usually defeasance occurs when a borrower owns a portfolio of Treasury securities, the coupons of which are used to service a debt. When the borrower has set aside sufficient assets to cover the debt, the debt does not need to be recorded on a balance sheet.

2. More broadly, a provision in an agreement voiding the agreement under certain defined circumstances.

defeasance

The extinguishment of debt. While defeasance technically refers to extinguishment by any method (for example, by payment to the creditor), in practice it is generally used to mean discharging debt by presenting a portfolio of securities (usually, Treasury obligations) to a trustee who will use the cash flow to service the old debt. This procedure permits the firm to wipe the debt off its financial statements and to show extra income equal to the difference between the old debt and the smaller, new debt. Also called in-substance debt defeasance.

defeasance

The process of legal title being transferred back to a borrower once all payments and other requirements in a mortgage loan have been completed.

References in periodicals archive ?
To make defeasance feasible, the property must have built up equity through the recent rally, Olasov said.
Media Contact: Eitan Weinstock, AST Defeasance Consultants, LLC, 3108569070, info@astdefeasance.
However, for an owner who is prohibited from pre-payment or defeasance, the most attractive option is to consider subordinate mezzanine financing.
Knowing that the defeasance was in good hands allowed me and my team to focus on the refinancing.
David Pardue, a principal in Primus Capital stated, "Engaging Chatham to act as our defeasance consultant was a significant factor in our ability to close this transaction on time and within budget.
Knowing that the defeasance process was in good hands allowed me to focus my efforts elsewhere in the overall execution of the transaction.
The company actively facilitates all aspects of the 30 day defeasance process, so the borrower can be confident that the defeasance will close on time.
The securities are typically purchased with a portion of the proceeds of a sale or refinance, so the defeasance transaction is usually coordinated with a related real estate transaction.
For example, 2005 brought the greatest recent change in real estate values, which led to a volume of defeasance that was four times greater than the previous year's and more than twice the total volume of defeasance in all prior years combined.
The company actively facilitates the 30 day defeasance process, so the borrower can be confident that the defeasance will close on time.
Adam Coleman, deal manager at Commercial Defeasance, said, "This transaction was a clear example of how the current economic turmoil can impact the timing of a defeasance transaction.
Commercial Defeasance has developed a strategic network of legal and financial professionals that provides the complete defeasance package at the lowest costs and with the fastest executions, said Levine.