Yield Maintenance is one of several types of prepayment penalties (defeasance, 5-4-3-2-1, etc.).
Treasury rates are a moving target and a consultant will be able to confirm or negotiate the rate with the Servicer.
A consultant will guarantee that all requirements are met and that the closing will be completed on the scheduled date.
Having a consultant will allow a 3rd party to confirm, for the borrower, that the penalty the Servicer has provided is accurate. There are intricacies that are found in the loan documents that may permit savings that the servicer overlooks when calculating the penalty.
Yield Maintenance is based on treasury rates which are constantly fluctuating. A consultant will be able
to confirm the rate the Servicer chooses and negotiate an accurate rate if necessary.
Yield Maintenance typically requires a 30 day notice
period (but not more than 60 day notice) in order to close on a specific date.
The closing date is required to be on a payment date to avoid additional penalties and paying additional interest through the next payment date.
Yield Maintenance does not require the involvement of numerous third party fees from accountants, lawyers, and custodians which can save the borrower $50,000-$60,000 in fees as compared with what you would see with a defeasance.
There are no upfront costs. YMC will coordinate with the Servicer for the payoff statement and only collects the consulting fee once the payoff has been completed.
NO! Prepayment provisions in loan documents vary GREATLY. Each provision specifically dictates Yield Maintenance methodology, index references, and calculation of the discount rate, along with many other details. With Yield Maintenance provisions, there are no set standards used by lenders. In fact, a knowledgeable drafter can make slight changes to a Yield Maintenance provision that can tremendously impact the amount of the prepayment penalty a borrower pays upon prepaying the loan
Some common examples of different methodologies that are all referred to generically as Yield Maintenance are:
the Net Present Value of future payments method.
the interest differential times PV factor method.
the Net Present Value of interest differential based on prepaid balance method.
the Net Present Value of interest differential based on amortizing balance.
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%).