What is Defeasance and How Does it Work?

What is Defeasance and How Does it Work?

Defeasance refers to the replacement of the collateral of a loan with securities (generally fixed-rate government bonds) that will offer a lender an equivalent return. In many cases, borrowers will need to purchase U.S. Treasury bonds to conduct defeasance, though other types of government-backed securities may be used in some scenarios.

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