Worked example, MidCap Pharma Inc, Year 2: CFADR before interest $60m. Min cash $8m. Year-Begin cash $10m. Mandatory repayment $5m. Sweep % = 75%. Calculate Year-End debt.
Inputs:
- CFADR (before interest): $60m
- Year-Begin Cash: $10m
- Min Cash (floor): $8m
- Cash interest (8% on $200m TLB): $16m
- Mandatory repayment: $5m
- Sweep rate: 75%
Calculation:
```
Pre-Sweep Cash: 10 + 60 − 16 − 5 = $49m
Excess Cash: 49 − 8 = $41m
Sweep: 41 × 75% = $30.75m
Year-End TLB: 200 − 5 − 30.75 = $164.25m
```
Total repayment $35.75m = ~18% of the Year-Begin TLB — a solid deleveraging pace for a middle-market LBO.
Deep diveShow more details
The order matters — first cover operating cash, then cash interest, then the mandatory repayment, then the min-cash floor (typically 8–12 weeks of operating coverage), and only what sits above that flows into the cash sweep.
Without the sweep the Year-End TLB would be $195m instead of $164m. At a 9x EBITDA exit multiple that shifts equity value by roughly $30m — worth a low-single-digit number of percentage points on the IRR.
Question: "What would more cash sweep do to the IRR?"
Answer: "On a typical 5-year hold at a 9x exit multiple, $30m of extra repayment delivers roughly 2–3 percentage points more IRR. Trade-off: cash tied up in the sweep can't be used for bolt-ons — which is why 100% sweep is rarely optimal"