What is 'excess cash flow' as contractually defined for the cash sweep?
ECF in the credit agreement is defined more narrowly than modeling CFADR — typically:
```
Consolidated Net Income
+ D&A (non-cash)
+ Other non-cash charges
+/− Changes in Working Capital
− Capex (Maintenance + Growth)
− Mandatory Debt Repayments
− Permitted Restricted Payments (e.g. Tax Distributions)
− Permitted Acquisitions (Bolt-Ons)
− Permitted Investments (CapEx above plan)
= Excess Cash Flow
```
Deep diveShow more details
| Item | Modeling CFADR | Contractual ECF |
|---|---|---|
| Capex | total capex deducted | only maintenance capex (growth often permitted) |
| Bolt-on acquisitions | not deducted | deducted ("Permitted Acquisitions") |
| Tax Distributions | not deducted | deducted |
| Result | typically higher | typically lower (more carve-outs) |
Contractual ECF is usually 20-40% lower than modeling CFADR — which gives the sponsor more room without triggering the sweep.
Junior modelers use modeling CFADR wholesale as the ECF base — wrong. Clean models have a separate ECF definition with carve-outs.
Question: "Which items do you negotiate in the ECF definition?"
Answer: "The permitted-acquisitions threshold, the permitted-investments cap, the tax-distribution floor. Typically 5-10% of EBITDA per category. These carve-outs are the sponsor-friendly items"