Defeasance

It’s been a tough slog for our friend, Superman. Competition from Xmen. Iron man. Facebook.

He’s just gotten, well…tired. So, needing something else to do, he finally built a home in his Fortress of Solitude. Nice, 4-bedroom ranch house, with an enclosed patio, all new steel appliances and an open concept kitchen. For when Lois comes by, or some of the guys.

Work has been slow, so he had to take out a mortgage (a million bucks' worth), and yeah, he wanted a nice man cave. Although Batman still rules the roost in that department. Anyway, the mortgage costs 6% a year.

What? He had bad credit. All those buildings he wrecked? Someone's gotta pay for them, right? So the million bucks costs 60 grand a year to rent. And that rent kinds stresses him out.

He wants to not have to worry. So what does he do?

Well, he buys bonds. He had some extra cash left over from when the city of Metropolis rewarded him financially for, uh…reversing time to save a busload of children. In fact, he had 800 grand just sitting around, and the bonds he bought had a yield of 7%. Or, said another way, he collected rent on his 800 grand of 56k a year.

And that helped a ton, because that 56k covered almost all of the 60k he had to pay on his mortgage. Supe here defeased all but 4 grand of his mortgage obligation in buying the bonds to offset his cash costs. And why wouldn’t he have just paid off the mortgage?

Well, for this story there’s a prepayment penalty, meaning he’s not allowed to pay off early without all kinds of extra cash. When the bank loaned the money, they wanted to be certain to get the minimum amount of interest payments…over the shortest possible time period...to make up for all the perceived risk, considering all the high-powered enemies he’s facing.

Because when it comes to risk, it’s, uh...kinda Superman’s Kryptonite.