Module IV· Cash SweepAdvanced
Question
What is a 'cash sweep holiday' and when do sponsors negotiate one?
Answer
Mechanics
A cash sweep holiday = suspension of the sweep for a defined period (typically Year 1, sometimes through Year 2). The sponsor keeps cash for strategic use.
Deep diveShow more details
Example use cases
| Trigger | Rationale to the lender |
|---|---|
| Working-capital build-up | A carve-out needs a WC reserve that wasn't required in the stand-alone setup |
| Bolt-on acquisitions | An M&A pipeline for add-ons in the forecast — no equity needed if cash is on hand |
| Capex program | A large investment in Years 1-2 that lifts EBITDA long term |
| Restructuring costs | Headcount reduction, site closure |
Consequence
The sponsor negotiates the holiday in the term sheet — the lender often accepts if:
- There is a clearly defined use of cash (plan submitted)
- The holiday is time-limited (12-24 months standard)
- The sweep runs at full rate again after the holiday
Common pitfalls
A holiday lengthens the deleveraging curve and cuts IRR by 1-3 percentage points — the sponsor has to weigh opportunity cost vs strategic flexibility.
Pitch tip
Question: "Would you negotiate a sweep holiday?"
Answer: "Yes, a 12-month holiday to build working capital in a carve-out case. The sweep starts at full rate from Year 2. It costs ~150bps of IRR but gives operational stability during the integration phase"