Defeasance
LexInter | January 21, 2003 | 0 Comments

Defeasance

The defeasance

The original defeasance is a high-quality management technique to eliminate a commitment constituting a liability (bond issue) by individualizing in an autonomous structure a financial asset of very high quality (Treasury bills) guaranteeing the payment of this commitment. .

The use of this technique was originally prompted by falling interest rates. The operation made it possible to generate an accounting profit.

In France, then in other countries (China for example) defeasance has become a technique for separating the “good” company from the “bad” company, by setting aside activities with difficult to determine risk and healthy activities.

Defeasance comes to the French Scene, G. Berlioz, 7 Intl; End. L. Rev. 1988

Restructuring and defeasance

CA Douai January 8, 2008


Defeasance and failure

Michel Rouger conference, May 6, 1996


The defeasance: in the USA

 

Definition in the USA of Defeasance

A technique of liability immunization which permits a debtor to offset and eliminate a liability with the purchase of government securities or a special risk management contract.

For tax, regulatory, contractual or other reasons, the issuer of debt may find it more appropriate to set aside certain assets-typically government bonds, and / or cash equivalents-against a debt obligation rather than repurchasing and canceling the debt. Unless the dedication of the assets set aside for extinguishing the debt is irrevocable, both the assets and liabilities will continue to appear on the balance sheet.

legislative device

Illinois Compiled Statutes, Local Government
Local Government Defeasance of Debt Law
50 ILCS 415 /

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