Skip to main content
Guide

Optimize your defeasance

The Chatham advantage

Independent advisory and transparency

  • We represent the borrower’s interest in every transaction.
  • Chatham partners with clients and educates on the defeasance process, providing accurate estimates of defeasance costs and residual value from start to finish.

Securities purchase and savings

  • We run an auction with three or more banks, and can save 2-5 basis points compared to a direct purchase from a single security broker.
  • When the loan documents do not allow an auction, we negotiate to secure a market competitive price from the security broker.
  • Our competitive process allows securities brokers to independently structure the lowest cost portfolios while meeting loan requirements.

Residual value and successor borrower

  • Residual value is a result of payment mismatches in securities loan payments. Chatham pioneered the practice of returning residual value to the borrower and has paid out over $169 million to date to its clients.
  • Clients choose either an advance payment at defeasance closing or payment at loan maturity.

Expertise

  • Since 2000, Chatham has closed thousands of defeasances, having executed over $100 billion total notional defeased.
  • Chatham has executed on over half of all defeasances in the market annually.

Chatham defeased the largest 5 transactions in 2019*


  • $169M+ Total residual value returned to clients
  • $100B+ Total notional defeased
  • 6K+ Deals/transactions all-time

What is defeasance?

Defeasance is a process by which a borrower may prepay a securitized fixed rate loan while still preserving debt service payments for the the bond holder(s).

How does it works?

The borrower purchases a portfolio of government bonds to serve as replacement collateral for the debt and to generate the cash flows required to meet the future obligations of the debt.

How does it differ from yield maintenance?

Yield maintenance is the actual prepayment of the loan, while defeasance entails a substitution of collateral and an assumption of the loan by the successor borrower.

Why should I engage with a consultant?

While the process can be summarized in a few lines, in practice it is very complex, involving a large number of parties with competing interests. Having an independent, experienced advisor on the borrower’s side is important to ensuring an on-time, cost-effective, and complication-free close.

*Source: Trepp CMBS Research, published January 2020

Need help with defeasance?

Contact a Chatham advisor about defeasance or yield maintenance.