U.S. defeasance activity reached a post-crash high of $22.4 billion last year, but the rate of growth slowed sharply. The volume of commercial MBS loans defeased in 2015 was up by $1.5 billion, or 7%, from $20.9 billion the previous year, according to a draſt of an annual Moody’s report to be released today. That was a modest increase compared to jumps of $7.7 billion (58%) in 2014 and $7.3 billion (124%) in 2013.

Moody’s expects activity this year to equal or slightly exceed the 2015 total, said vice president Gregory Reed, one of the report’s authors. First-quarter activity was strong, he said, and “many large Class-A office loans in major markets are well positioned to refinance throughout 2016 on into 2017.”

Borrowers use defeasance to release properties from securitized commercial mortgages, which generally have strict curbs on early payoffs. The borrower replaces the loan collateral with top-rated government bonds that will provide the same revenue stream and cover the payoff at maturity. The maneuver can be costly if yields on U.S. Treasury’s are well below the rates on loans being defeased, which has long been the case. Property owners weigh the expense against the opportunity to reap cash by selling or refinancing the collateral properties.

Defeasance has surged in the past few years, with pre-crash securitized mortgages approaching maturity, property values rising and borrowing costs low. But in the second half of last year, turbulence in financial markets caused CMBS spreads to widen sharply, leading to a drop in issuance and pushing loan rates up. That changed the calculation for borrowers considering early refinancing.

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“We dried up when the conduit loan market dried up,” said Jeff Lee, chief operating officer of Commercial Defeasance, one of the leading consulting firms in the sector. He said fourth quarter defeasance volume is typically much larger than the other quarters every year, but in 2015 it was flat, largely due to a drop in conduit lending. “Even though you can get a loan from other sources of financing . . . that was a major factor,” said Lee, whose firm is a unit of Charlotte-based QuietStream Financial.

Reed, at Moody’s, said several refinancing-and-defeasance transactions that were scheduled for the fourth quarter were pushed into the first quarter. He noted that this year, many borrowers may try to defease in order to refinance before risk-retention rules take effect in December, potentially disrupting CMBS issuance.

The rating agency’s report said the large volume of securitized loans scheduled to mature this year and next, estimated by Trepp at $192.7 billion, represents a “sweet spot for defeasance.” It said efforts by borrowers to refinance ahead of that wave contributed to last year’s volume.

About $16.4 billion, or 73%, of the loans defeased last year were originated in 2005-2007, at the height of the last market cycle. “Because of the last year’s robust lending environment, many borrowers were able to refinance existing loans, frequently with higher proceeds and lower interest rates,” Moody’s said.

The largest defeasance of the year, involving an $806 million office loan, was connected to a sale. Originated by Credit Suisse in 2006 and due to mature this September, it was part of the collateral for a $4.3 billion pooled conduit offering (CSMC 2006C4). The borrower, a partnership between Sapir Organization of New York and CIM Group of Los Angeles, defeased the mortgage last August, as it sold the 2.3 million-square-foot tower at 11 Madison Avenue in Manhattan for $2.6 billion. The buyer, SL Green Realty of New York, obtained $1.4 billion of fixed-rate debt from Deutsche Bank, Morgan Stanley and Wells Fargo. Those banks securitized $708.2 million of the new 10-year mortgage in a single-asset transaction that priced last September (MAD 2015-11MD).

In some cases, rising property values or other factors can make it economical to defease a loan long before its scheduled maturity. Mortgages with at least five years of remaining term represented $2.2 billion, or 10%, of last year’s defeasance total, up from 5% in 2014.

Meanwhile, “one of the highlights in 2015 was the increase in the share of defeasance in deals with loans that were newly eligible for defeasance,” Moody’s said. Such loans, securitized in 2012 and 2013, accounted for $2.7 billion, or 12%, of CMBS debt defeased last year — up from 9% a year earlier. Under federal tax rules for Remic trusts, CMBS mortgages typically can’t be defeased within two years of being packaged as a securitization.

Some 1,309 loans were defeased in 2015, up from 1,275 the year before. Office mortgages constituted the largest share of the aggregate balance, at 35%, followed by loans on properties in the other major sectors: multi-family (33%), retail (15%), hotel (10%) and industrial (2%).

Defeasance initially gained favor with borrowers in 20052007, when the expense was offset by the benefits of freeing up properties for sale or refinancing them and taking cash out. Volume peaked at $32.4 billion in 2007, before plunging amid the credit crunch.