Cash sweep

A cash sweep is the clause that requires the borrower to apply part of its excess cash flow each year to the prepayment of its debt. The agreement defines the excess from earnings or operating cash flow, after interest, taxes, scheduled amortisation, capital expenditure and other permitted deductions, then applies a percentage to it. This percentage steps down when leverage decreases. The restructuring agreement that Advantage Solutions filed with the SEC in 2026 sets the sweep at 75% of annual excess cash flow, reduced to 50% when first lien net leverage falls to 4x or less. The same agreement deducts, on a one for one basis, voluntary repayments of debt of the same rank, acquisitions and capital expenditure made. Payment takes place once a year, after delivery of the accounts. In an LBO, the cash sweep accelerates the deleveraging of the holding company and reduces the amount to refinance at maturity. In return, it limits the cash available for acquisitions, capital expenditure and distributions. Bullet debt with a high sweep behaves in practice like amortising debt. The negotiation covers the definition of the excess, the permitted deductions, the leverage steps and how voluntary repayments are credited.

A company generates €20m of excess cash flow over the financial year. Its agreement provides for a 50% sweep above 3.5x leverage and 25% below. At 3.8x, it repays €10m of senior debt and keeps €10m for its capital expenditure.

• The definition of excess cash flow and the list of permitted deductions.
• The leverage steps that reduce the sweep percentage.
• How voluntary repayments and acquisitions are credited against the amount due.
• The annual calculation and payment date.