What is Defeasance?
Defeasance is a process in commercial lending, whereby borrowers replace the collateral in the original loan transaction with substitute collateral. U.S. Treasury Bills are the preferred form of replacement collateral. A third-party specialist will determine the amount of replacement collateral necessary to ensure that the security holders with an interest in the original loans predictable repayment outlay are not left out in the cold. Of course, accountants and attorneys must be involved in the process to ensure that the defeasance agreement is adequate financially and legally valid and enforceable.
A. Defeasance is a process in commercial lending wherein borrowers replace the collateral in the original loan transaction with substitute collateral. U.S. Treasury Bills are the preferred form of replacement collateral. A third-party specialist will determine the amount of replacement collateral necessary to ensure that the security holders with an interest in the original loan’s predictable repayment outlay do not lose value. Of course, accountants and attorneys must be involved in the process to ensure that the defeasance agreement is financially adequate and legally valid.
