Otabek

Defeasance is a type of call protection for CMBS securities.

There are several advantages to this, first as eighty said, because you're investing in treasury securities you are increasing the credit of the pool of mortgages.

Second, unlike the other call protection provisions, there is no distribution made to the bondholders when defeasance takes place. So, since there are no penalties, there is no issue as to how any penalties paid by the borrower are to be distributed amongst the bondholders in the CMBS structure.