LBO Cash Sweep

How does available cash repay LBO debt?

The LBO Model first pays cash interest and deal tax, then mandatory amortization. It applies the selected sweep percentage to cash above the minimum and allocates that budget to eligible tranches in priority order. Compare 25% and 100% using the same operations and funding.

Set the funding and repayment assumptions

All money is EUR thousands. Example Company has 2026 actuals and forecasts for 2027–2031. Annual revenue 4,000 less COGS 2,000 and overhead 400 gives EBITDA 1,600. D&A and capex are 200 each, EBIT 1,400 and tax rate 25%. Working-capital changes and other operating inputs are zero; unlevered FCFF is 1,050 each year. Opening PP&E and equity are 5,000 each. NOL use is disabled; deal tax is paid in the same period.

Entry is after 2026 and exit after 2031: five years under the actual model-period dates. Entry and exit use reported EBITDA and 6× unless a case explicitly changes them, so each base EV is 9,600. Acquisition cash is explicitly overridden to 100 and existing debt to zero; other entry and exit bridge items and exit fees are zero. Purchase equity is 9,700. This acquisition cash is a supplied deal assumption, not the default book-year cash.

Minimum cash is 200 versus acquired cash 100, requiring a 100 cash top-up. Uses are 9,700 purchase equity + 100 top-up = 9,800. Debt is A 3,000 at 5% cash interest and 10% amortization of its initial amount, plus B 1,500 at 8% cash interest and no amortization. Both have PIK 0% and are sweep eligible. Maturities are 2033 / 2034; priorities 0 / 1 mean A before B. Sponsor funding is 5,300; rollover, dilution, fees and distributions are zero.

LBO debt paydown: reconcile the first period

Deal opening cash is 200. First-period FCFF 1,050 plus unlevered tax 350 less cash interest 270 and deal tax 282.50 produces deal cash generation 847.50. This financing-aware cash is distinct from the unlevered operating cash flow explained in Free Cash Flow.

Mandatory A repayment is 3,000 × 10% = 300, based on initial principal rather than its declining balance. Cash after mandatory repayment is 200 + 847.50 − 300 = 747.50. Reserving the 200 floor leaves excess 547.50. A 25% sweep is 136.875 and ends with cash 610.625; a 100% sweep is 547.50 and ends with cash 200. The floor is a retained balance, not an extra cash expense. Display rounds to two decimals.

Allocate mandatory and sweep repayments in order

Mandatory repayments are processed across the tranches first. The discretionary sweep then pays the lowest priority number among eligible balances. A receives all sweep until it is repaid. In the 100% case during 2030, A has only 60.96 left after mandatory repayment; it receives that amount and B receives 585.50 from the remaining budget.

In 2031 A is already zero, so there is no A mandatory payment. B receives its remaining 914.50; generated cash exceeds eligible debt and ending cash rises to 280.63. A 100% sweep does not create negative debt or force the cash floor to absorb unused repayment capacity. The displayed excess row is an explanatory reconciliation of the engine’s opening cash, generated cash, mandatory repayment and floor.

Compare interest burden, exit debt and sponsor proceeds

The higher sweep reduces principal sooner, which lowers subsequent interest on opening debt. Total cash interest falls from 1,083.27 to 892.49. Exit debt falls from 1,434.73 to zero, but less cash is retained.

At EV 9,600, lower-sweep equity is 9,600 + 1,572.28 − 1,434.73 = 9,737.54. Higher-sweep proceeds are 9,880.63. Sponsor funding and ownership are unchanged; the net benefit here comes from reduced interest expense under the supplied tax assumptions, not from counting debt repayment and retained cash twice.

Reproduce both cash-sweep settings

1. Download 25% sweep and 100% sweep, then explicitly import each through Manage models → Import. In Model, switch to Advanced before editing, then return to Deals → LBO. A blank workspace may require Activate; the imported files already have LBO active. The CTA opens your workspace and does not import a file automatically.

2. Under Debt structure inspect A/B amounts, cash rates, amortization, maturities, priorities and selected Sweep flags above. Under Cash / debt paydown set minimum cash 200 and Excess cash sweep to 25% or 100%. The acquisition bridge stays at cash 100, debt 0.

3. Compare mandatory repayment, total sweep, closing debt and cash for every year. The first high-sweep total is 547.50; compare the individual tranche closing balances to follow priority. Switching the low case to 100% reproduces the high case’s schedule and Sponsor returns.

Respect funding and scope boundaries

The model applies maturity repayment as mandatory and checks for cash below the floor. A shortfall makes sponsor MOIC and IRR unavailable; a sweep is not an automatic borrowing facility. It does not test covenants, borrowing bases, lender approval or optimal liquidity strategy.

LBO Sources and Uses reconciles initial funding. PIK Interest explains principal accretion; LBO Capital Structure compares the financing mix. MOIC vs IRR explains the return comparison.