defeasance

de·fea·sance   (dĭ-fē'zəns)    n.   A rendering void; an annulment. The voiding of a contract or deed. A clause within a contract or deed providing for annulment. [Middle English defesaunce, from Anglo-Norman, from Old French defesance, from defesant, present participle of desfaire, to destroy; see defeat.]

Defeasance

A provision that voids a bond or loan when the borrower sets aside cash or bonds sufficient enough to service the borrower's debt.

Also referred to as "defease."

Investopedia Commentary

The borrower sets aside cash to pay off the bonds, therefore the outstanding debt and cash offset each other on the balance sheet and don't need to be recorded.

Related Links

Bond Basics Tutorial

See also: Bond, Repayment

Also spelled: defeasances

defeasance

The extinguishment of debt. While defeasance technically refers to extinguishment by any method (for example, by payment to the creditor), in practice it is generally used to mean discharging debt by presenting a portfolio of securities (usually, Treasury obligations) to a trustee who will use the cash flow to service the old debt. This procedure permits the firm to wipe the debt off its financial statements and to show extra income equal to the difference between the old debt and the smaller, new debt. Also called in-substance debt defeasance.

Main Entry: de·fea·sance
Pronunciation: di-'fE-z&ns
Function: noun
Etymology: Anglo-French defesance, literally, undoing, destruction, from Old French deffesant, present participle of deffaire to destroy, undo —see DEFEAT
1 a : a condition (as in a deed or will) that upon fulfillment terminates a property interest b : an instrument setting forth such a condition
2 : a rendering null or void