Yield maintenance provisions are complex. If you aren’t careful, you could end up paying more than necessary. For a fee of just $1,500, Commercial Defeasance will provide you with a custom Yield Maintenance Report so you can make an informed decision about whether to accept a lender’s payoff number or contest it. We’ll do the following:
Analyze the yield maintenance provision in your loan documents
Provide you with a detailed summary report tying the language in your yield maintenance provision to our calculation
Even if you decide to accept the lender's number, you'll still sleep better at night knowing you're not overpaying.
And, if you do decide to contest the lender's payoff amount, you can use our work product and attempt to resolve the discrepancy yourself, or you can hire us to work on your behalf to resolve the discrepancy.
You probably have some questions - and we've got the answers.
Check out our FAQ page to learn more ›
Are all Yield Maintenance penalties calculated the same way?
What are some different basic types of Yield Maintenance methodologies?
If my loan has a Yield Maintenance Provision, can I ever pay it off at par or at a discount like I could with a defeasance provision?
How can I be sure the Lender is calculating my yield maintenance penalty correctly?
No. Prepayment provisions in loan documents vary significantly from lender to lender and loan to loan. Each provision specifically dictates yield maintenance methodology, index references for the discount rate, timing for when to identify the reference rate, and calculation of the discount rate, among other details. There is no standard provision used by lenders. In fact, a savvy drafter can make subtle changes to a yield maintenance provision that dramatically effect the amount of the prepayment penalty a borrower pays upon prepaying the loan. Many lenders have a handful of models that they force each yield maintenance provision into even if it’s not exactly accurate. As a result, lenders can come up with prepayment penalties that are not exactly tied to the specific language, which means their calculation could be lower or higher than one tailored to the specific yield maintenance provisions in the loan documents.
Some common examples of different methodologies that are all referred to generically as Yield Maintenance are (i) the Net Present Value of future payments method, (ii) the interest differential times PV factor method, (iii) the Net Present Value of interest differential based on prepaid balance method, (iv) the Net Present Value of interest differential based on amortizing balance, and (v) the Yield Maintenance Penalty = the cost of a defeasance portfolio method. Within each of these five common categories, there can be myriad iterations resulting from small language tweaks and interpretations.
Chances are you can never prepay a CMBS loan at a par or at a discount with any Yield Maintenance prepayment provision. Yield Maintenance provisions typically have a minimum 1-3% prepayment floor that is triggered if the calculation results are below the floor. In other words, most yield maintenance provisions require the borrower to pay the greater of the yield maintenance penalty or a percentage of the loan balance (usually 1-3%).
That’s where we come in. As an industry leader in the field of defeasance and yield maintenance calculations, we provide the knowledge and transparency needed to ensure our clients are treated fairly.