What bonds can be used to structure the defeasance collateral?
The Servicer will look to the definition of allowable securities in the loan documents. Typically, loan documents generally allow U.S. Treasury Bills, Notes and STRIPS (Separate Trading of Registered Interest and Principal of Securities). However, depending on the specific language used, it may be possible to use fixed-rate bonds issued by the Resolution Trust Corporation (REFCOs), Government Sponsored Entities such as Fannie Mae or Freddie Mac, and less commonly, bonds issued by entities such as the Federal Home Loan Banks (FHLB). Fannie Mae, Freddie Mac, and FHLB bonds all trade at a spread over Treasuries making it less costly for the Borrower to purchase a portfolio of these bonds rather than US Treasuries alone. Chatham Financial (and our legal representatives) are familiar with the language used to describe allowable securities and will work with the Servicer to allow the use of higher yielding bonds if it is possible. Where does the residual value of the Successor Borrower come
