Cash Sweep

A waterfall provision requiring that some or all of the cash otherwise available for distribution to subordinated or residual investors be redirected instead toward accelerated repayment of senior obligations upon the occurrence of a specified trigger event, such as a failed overcollateralization test or an early-amortization event. Cash sweeps function as an intermediate protective measure between normal waterfall operation and a full default remedy, allowing a structure to self-correct in response to early signs of underperformance without requiring a formal event of default or investor enforcement action. Once the triggering condition is cured — for example, once the overcollateralization ratio is restored above its required threshold through portfolio recoveries — the cash sweep typically terminates and normal waterfall distributions to subordinated and residual holders resume.

A cash sweep gives senior investors a proportionate, automatically reversible response to early underperformance, avoiding the binary all-or-nothing dynamic of a formal default declaration while still meaningfully protecting their position — subordinated investors bear the practical cost through delayed distributions long before any actual loss is allocated to them. Sponsors and subordinated investors negotiate cure mechanics and sweep-termination conditions closely, since an overly punitive or slow-to-reverse sweep can trap cash well beyond what the underlying performance issue actually justifies.