Modeling Cash Sweeps: Excess Cash and Debt Repayment Priorities

Define cash available before sweeping

Separate operating cash flow from cash interest, mandatory principal, dividends and required liquidity. If your starting cash flow already deducts interest, do not deduct it a second time. A NOPAT-based bridge is unlevered and needs a separate financing adjustment before deriving cash available for debt repayment.

Cash before sweep = Opening cash + cash after operations and tax − cash interest not already deducted − mandatory principal − dividends
Available cash = MAX(0, Cash before sweep − minimum cash)

Allocate a capped repayment by priority

Apply the contractual sweep percentage, then cap each tranche’s repayment at its outstanding eligible principal. Reduce remaining available cash after each payment. Scheduled repayments and optional prepayments should remain separate so the repayment schedule can be reconciled.

Sweep pool = Available cash × sweep percentage
Tranche sweep = MIN(Eligible balance, remaining sweep pool)

Worked example: two eligible tranches

Cash before sweep is $8m and the minimum cash balance is $2m. A 50% sweep produces a $3m repayment pool. If the first eligible loan has $2m outstanding, repay $2m there and $1m to the next eligible loan. Closing cash is $5m.

At a 100% sweep, the pool would be $6m, subject to eligible debt balances. Cash cannot be forced below the liquidity floor, and no debt balance should become negative.

Excel schedule and checks

Calculate beginning balance, mandatory amortization, sweep and ending balance in separate rows. Use MIN and MAX to make limits explicit. If interest uses average debt, the sweep may feed back into interest: either solve the defined dependency or use a clearly disclosed non-circular interest convention.

• Ending debt = Beginning debt + new borrowings + PIK − scheduled principal − sweep.
• Cash decrease from principal must equal cash-pay principal in the debt schedule.
• Sweep cash must reconcile to actual repayments; retain unused cash when eligible debt is fully repaid.

diophos debt options

The diophos sweep prioritizes amortizing loans, then VF amortizing debt. Bullet term loans and VF non-amortizing debt are excluded from early sweeps in the current model. These are model conventions, not universal lender terms. Check whether they match the transaction you are analyzing.