How to read a conduit loan's prepayment string
Every conduit loan’s prepayment terms fit in one short code, printed for each loan in the deal’s prospectus (Annex A-1). Read left to right, each letter is a stretch of the loan’s life and the number in brackets is how many monthly payments it lasts.
| Code | Meaning |
|---|---|
| L | Lockout. No prepayment at all. |
| D | Defeasance. You can release the property by replacing your payments with U.S. government securities. |
| YM1 | Yield maintenance with a 1% minimum: the greater of 1% of the amount prepaid or the yield maintenance charge. |
| DorYM1 | Your choice of defeasance or yield maintenance (1% minimum). |
| 1% | A flat 1% premium. |
| O | Open. Prepay at par, no premium. |
These four strings come from loans in BANK 2026-BNK52, a ten-year conduit deal filed with the SEC on June 16, 2026 (prospectus):
- L(24),DorYM1(92),O(4). Locked for the first 24 payments. For the next 92 you can defease or pay yield maintenance. The last 4 are open.
- L(23),YM1(90),O(7). Locked for 23, yield maintenance for 90, open for the last 7.
- L(31),D(83),O(7). Locked for 31, defeasance only for 83, open for 7.
- YM1(113),1%(3),O(4). No lockout. Yield maintenance for 113 payments, then a flat 1% for 3, then open for 4.
Why the lockout is at least two years
Conduit loans sit in trusts taxed as REMICs. Treasury regulations allow a REMIC to release a mortgage in exchange for government securities only if the release is not within two years of the trust’s startup day (26 CFR 1.860G-2(a)(8)). So any string that leads to D starts with roughly two years of L. A string that leads straight into yield maintenance, like the last one above, needs no lockout.
What the string does not tell you
The exact yield maintenance formula. The same deal uses six different loan-level formulas, all discounting at Treasury flat with a 1% floor, but with different end dates and different ways of converting the Treasury yield to a monthly rate. Your note governs. The prepayment calculator runs the most common form and the defeasance cost side by side on today’s Treasury curve, so you can see which part of your string is the expensive one.