CMBS Conduit Loans: Defeasance Portfolio Optimization vs. Yield Maintenance Penalty Calculation
A commercial mortgage guide to CMBS prepayment penalties, Treasury security defeasance portfolios, and yield maintenance premium equations.
CMBS Prepayment Penalty Calculator
Compare yield maintenance penalties against Treasury defeasance portfolio replacement
Empirical Analysis & Findings
## CMBS Conduit Prepayment Architecture
Commercial Mortgage-Backed Securities (CMBS) loans bundle commercial mortgages into public bond trusts. Because bondholders purchase CMBS based on guaranteed yield duration, borrowers face strict prepayment penalties upon refinancing or selling.
### 1. Yield Maintenance Penalty Equation
Yield maintenance compensates certificate holders for reinvestment yield drops:
$$\text{Penalty} = \sum_{t=1}^{N} \frac{\text{Monthly Interest Differential}_t}{(1 + r_t)^t}$$
Where:
$$\text{Interest Differential} = \text{Note Rate} - \text{Replacement Treasury Yield}$$
If the note rate is 6.50% and prevailing Treasury yields drop to 3.80%, the 270 bps differential over remaining loan maturity produces a massive cash penalty.
### 2. Defeasance Portfolio Mechanics
Under defeasance, real estate collateral is substituted by a custom portfolio of non-callable zero-coupon U.S. Treasury securities that mature exactly on remaining payment dates, releasing the property lien.
Linked Entities in the Autonomous Knowledge Graph
Frequently Asked Questions
What is the difference between Yield Maintenance and Defeasance in CMBS loans?
Yield maintenance is a cash penalty paid to the lender covering lost interest; defeasance replaces real estate collateral with a pledged portfolio of U.S. Treasury bonds generating identical cash flows.
How long is the initial prepayment lockout period on CMBS conduit debt?
Conduit CMBS loans typically enforce a strict 2-year lockout period from the securitization closing date before defeasance or prepayment is legally permitted.
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