Debt Defeasance

Ron Paterson

Chapter 13 in Off Balance Sheet Finance, 1993, pp 103-105 from Palgrave Macmillan

Abstract: Abstract Defeasance means nullification; debt defeasance therefore arises when a debtor is released from its obligations under the debt. In the context of this discussion, however, the term is used to describe a more oblique arrangement which produces a similar result, whereby a debtor deposits a sum of money with a third party which will use the money to pay off the borrowings at the end of their term. In the US, such a transaction is described as ‘in-substance defeasance’. The accounting questions which arise are whether the deposit with the third party can be set against the debt or whether the amounts must remain separately on either side of the balance sheet, and whether the difference between the two (arising because of different interest rates on the deposit and the borrowing) can be taken to the profit and loss account.

Keywords: Interest Rate; Cash Flow; Balance Sheet; Secondary Market; Specific Obligation (search for similar items in EconPapers)
Date: 1993
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DOI: 10.1007/978-1-349-12613-2_13

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