Define Defeasance Agreement

Define Defeasance Agreement

A defeasance agreement is a legal contract that is used in the context of a bond issue. Its purpose is to release the issuer of the bond from the obligation to pay interest and principal on the bond if certain conditions are met. The conditions usually include setting aside funds in an escrow account that will be used to pay off the bond at maturity.

Defeasance is commonly used in the world of finance and is a term used to describe the process of rendering a bond issue null or void. The term «defeasance» comes from the Latin word «defeasare,» which means «to render void.»

A defeasance agreement typically involves the transfer of assets, such as cash or other securities, into an escrow account that will be used to pay off the bond at maturity. The assets in the escrow account are usually invested in low-risk investments, such as government bonds, to ensure that they will be available when the bond comes due.

The purpose of a defeasance agreement is to allow bond issuers to remove a liability from their balance sheet while still fulfilling their obligations to bondholders. By setting aside the funds to pay off the bond, the issuer is able to eliminate the risk of default, which can be a major concern for investors.

One common use of a defeasance agreement is in the context of a refinancing. When a bond issue is refinanced, the issuer may use a defeasance agreement to release itself from the obligation to pay interest and principal on the original bond issue. This allows the issuer to issue new bonds at a lower interest rate, which can save money in the long run.

Another use of defeasance is in the context of asset-backed securities (ABS). In an ABS, the issuer may use a defeasance agreement to release itself from the obligation to pay interest and principal on the securities if the underlying assets are paid off or sold.

In conclusion, a defeasance agreement is a legal contract used in the context of a bond issue to release the issuer from the obligation to pay interest and principal on the bond. The agreement typically involves setting aside funds in an escrow account that will be used to pay off the bond at maturity. Defeasance is commonly used in the context of refinancing and asset-backed securities.

Select the fields to be shown. Others will be hidden. Drag and drop to rearrange the order.
  • Image
  • SKU
  • Rating
  • Price
  • Stock
  • Availability
  • Add to cart
  • Description
  • Content
  • Weight
  • Dimensions
  • Additional information
  • Attributes
  • Custom attributes
  • Custom fields
  • Se vende
  • Gastos de envío
Click outside to hide the compare bar
Compare
0
0