What happens to the securities if the defeasance fails to close?
If the defeasance fails to close (for example, if the cash for the securities is not wired to the Securities Intermediary) then the securities for the defeasance collateral will be returned to the bank from which they were to be purchased. In the interim, it is likely the market would have risen or fallen to some degree. If the securities have fallen in price since the securities auction, the borrower may be held liable to make the bank “whole” for any change in the value of the securities.
