A deferred establishment fee (DEF) is a fee that is charged by a securitisation issuer to investors when they purchase a securitisation security. The DEF is typically deferred, meaning that it is not paid upfront but is instead paid out over time, typically in the form of reduced interest payments.
The DEF is used to cover the costs of setting up the securitisation, such as legal fees, accounting fees, and marketing fees. It can also be used to provide a buffer against losses in the early years of the securitisation.
The DEF is a common feature in securitisations, and it is typically disclosed in the securitisation's offering documents.
Here are some examples of DEF in securitisation:
- A securitisation of mortgages might have a DEF of 0.5% of the face value of the mortgages. This means that investors would pay 0.5% less in interest payments over the life of the securitisation to cover the costs of setting up the securitisation.
- A securitisation of credit cards might have a DEF of 1% of the face value of the credit cards. This means that investors would pay 1% less in interest payments over the life of the securitisation to cover the costs of setting up the securitisation.