Everything You Should Know About Waterfall Payments What is a waterfall payment structure? A waterfall payment structure is a system for distributing payments among different levels of debt holders in a corporate debt financing. In a typical corporate debt financing, there are several levels of debt, with each level having its own interest rate and maturity date. The waterfall payment structure outlines how the payments will be distributed among the different levels of debt holders.
The most common type of waterfall payment structure is the senior-subordinate structure. In this type of structure, the senior debt holders are paid first, followed by the subordinate debt holders. The subordinate debt holders are paid after the senior debt holders because they have a lower claim on the company's assets.
Another type of waterfall payment structure is the pari passu structure. In this type of structure, all debt holders are paid equally. This type of structure is less common than the senior-subordinate structure because it can be more difficult to negotiate.
The waterfall payment structure is an important part of corporate debt financing because it helps to ensure that the different levels of debt holders are paid in a timely and orderly fashion. Without a waterfall payment structure, the different levels of debt holders might not be paid in a timely manner, which could lead to financial problems for the company.
What is a waterfall calculation?
A waterfall calculation is a mathematical model used to determine the distribution of proceeds from the sale of a security, typically a bond. The model is designed to answer the question of how the proceeds from the sale are distributed among the different tranches, or layers, of the security. The most common use of waterfall calculations is in the context of collateralized debt obligations (CDOs).
In a CDO, there is typically a senior tranche, which is the first to receive proceeds from the sale of the security, and a junior tranche, which is the last. The senior tranche is typically the safest, because it has first claim on the proceeds. The junior tranche is typically the riskiest, because it has last claim on the proceeds.
The waterfall calculation is designed to answer the question of how the proceeds from the sale of the security are distributed among the different tranches. The calculation is based on a number of factors, including the order of the tranches, the size of the tranches, and the type of collateral.
What is ceding of pari passu charge? Assuming you are referring to a corporate debt instrument, a "ceding of pari passu charge" refers to a situation where the issuer of the debt instrument agrees to subordinate their position to that of another creditor in the event of a default. This means that in the event of a default, the issuer will only receive payment after the other creditor has been paid in full. This type of arrangement is typically used to incentivize creditors to provide financing to a company that may be considered to be high risk. What is a VC waterfall? A VC waterfall is a way of structuring the allocation of proceeds from the sale of a company in a venture capital transaction. The proceeds are typically allocated to the different classes of investors in the company according to their respective ownership percentages. The waterfall allows the investors to receive their respective shares of the proceeds while ensuring that the company's debt is paid off first. What is a cash waterfall analysis? A cash waterfall analysis is a tool used by corporate finance professionals to assess the impact of different cash flows on the overall financial health of a company. The analysis is used to determine how much cash is available to repay debts, invest in new initiatives, and fund other operating expenses.
The cash waterfall analysis starts with a company's net income. From there, adjustments are made for items like depreciation and amortization, as well as one-time items like restructuring charges. This gives you the company's adjusted EBITDA.
From there, interest payments and other debt-related expenses are deducted. This gives you the company's available cash flow.
Finally, capital expenditures and other investments are deducted. This gives you the company's free cash flow.
The cash waterfall analysis is a valuable tool for corporate finance professionals because it allows them to see how different cash flows impact the overall financial health of a company. It can also be used to assess the impact of potential changes to a company's operations, such as new initiatives or restructuring charges.