cash sweep covenant definition

Keywords: credit enhancements; cash flow sweep; dividend lock-up covenants; dividend lock-up reserves; loan victoria secret coupon in store retailmenot covenants; debt to ebitda ratio; released cash; debt prepayment, summary, loan agreements can contain covenants that protect lenders through limiting dividends in various circumstances.
Cash that is trapped is placed in a reserve account and it is released when the covenant is satisfied.Dividend lock-ups limit the amount of clean vehicle rebate project dividends if cash flow is relatively low while cash flow sweeps allocate some cash flow to lenders when cash flow is either high or low.Covenants affect the equity IRR of a project or an acquisition because they influence the timing of dividends in analogous manner by which refinancing influences the IRR by virtue of the timing of dividends.If cash flow gradually increases or decreases as in the case of a toll road or a solar project, the covenants are not very beneficial and can reduce the equity IRR by a wide margin.Benefits to lenders of the covenants depend on the volatility of cash flow and the possibility that cash flow can suddenly fall off a cliff.Get PDF : This Chapter (173K all Chapters).
In evaluating the costs versus the benefits of covenants, the standard methods used to model cash flow waterfalls can be applied.

The limitation of dividends for a cash flow sweep can be driven by the debt to ebitda ratio.Skip to Main Content, get PDF : This Chapter (173K all Chapters.To model a cash trap covenant a switch variable for testing the violation of the covenant level should be used.Two credit enhancements discussed in this chapter are dividend lock-up covenants and cash flow sweeps.Covenants and other elements of loan agreements that are designed to add safety to loans can be called credit enhancements.Learn new Accounting Terms.A term used to describe the income derived from mortgages or other assets backing a bond that is in excess of what is needed to retire the bond.The excess cash flow.(ed) (2014) Covenants and.Cash, flow Sweeps in Project Finance Models, in Corporate and Project Finance Modeling: Theory and Practice, John.#2060 Front Text: What's cookin'?
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