defeasance

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
KBRA observed that both defeasance and supplemental debt accelerated in recent years as rent and property values climbed.
More recently, defeasance continued to climb year-over-year while supplemental debt additions actually fell by 16 percent, KBRA noted.
Moody's report also showed stronger property values create a climate that is ripe for defeasance, which in turn boosts a securitization's credit quality.
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.
Put simply, defeasance is a substitution of collateral.
The defeasance process is complicated which is why a defeasance consultant should facilitate the process.
Known industry-wide by its slogan "Defease with Ease," Commercial Defeasance has developed a strategic network of legal and financial professionals that provide the complete defeasance package at the lowest costs and with the fastest executions.
"By combining our respective skills, ARCS and Commercial Defeasance will be better able to speed a complex transaction along," added Levine, "and to deliver that in a very cost effective way.
Commercial Defeasance personnel take control, coordinate with all the parties involved and follow through to the last detail.