The Impact Of Defeasance On Bond Prices

Abstract

This study reports on the financial market’s reaction to the defeasance of corporate debt and whether the market perceives a changes in risk as a result of this activity.  The prices of seventeen bonds both before and after defeasance were analyzed using t-tests to determine if any significant price changes related to the act of defeasance occurred between these two time periods.  Contrary to what might be expected no significant differences were found.