Legal defeasance

Legal defeasance

The deposit of cash and permitted securities, as specified in the bond indenture, into an irrevocable trust sufficient to enable the issuer to fully discharge its obligations under the bond indenture.

Legal Defeasance

1. A provision in a loan or bond removing it as a liability on a balance sheet if cash or a portfolio is set aside for debt service. Usually defeasance occurs when a borrower owns a portfolio of Treasury securities, the coupons of which are used to service a debt. When the borrower has set aside sufficient assets to cover the debt, the debt does not need to be recorded on a balance sheet.

2. More broadly, a provision in an agreement voiding the agreement under certain, defined circumstances.