Definition: Defeasance

Category: External debt - IMF

Defeasance is a technique by which a debtor unit removes liabilities from its balance sheet by pairing them with financial assets, the income and value of which are sufficient to ensure that all debt service payments are met. Defeasance may be carried out by placing the paired assets and liabilities in a separate account within the institutional unit concerned or by transferring them to another unit. The Guide does not recognize defeasance as affecting the outstanding debt of the debtor as long as there has been no change in the legal obligations of the debtor. In other words, provided the payment obligations remain de jure with the original debtor, ownership of the liabilities remains unchanged, and should be reported as external debt of the original debtor. http://ec.europa.eu/eurostat/ramon/statmanuals/files/external_debt_guide_2003_EN.pdf#page=227