Module VI· Cash Sweep ModelingAdvanced
Question

How do you model step-down sweep provisions?

Answer

Step-down sweep provisions reduce required sweep percentage as leverage falls. For example, 75% of excess cash flow above 4.0x leverage, 50% below 4.0x, and 25% below 3.0x. Model leverage ratio, lookup the applicable sweep percentage, then multiply excess cash flow by that percentage, capped by debt outstanding and available cash.