easy · Asset-Backed Securities asset-nuances
A CMBS loan has a lockout on prepayment, but allows for 'Defeasance'. The borrower chooses to defease a $10M loan with a 6.00% coupon and 5 years remaining.
What must the borrower provide to the trust to facilitate this?
- A replacement commercial property of comparable value, condition, and net income
- A lump-sum cash payment equal to the entire $10M outstanding loan balance, waiving any prepayment penalty
- A portfolio of U.S. Treasury securities replicating the $10M loan's remaining cash flows
- A personal guarantee from the property sponsor covering the $10M in lieu of collateral substitution
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