How to Model Cash Sweep to Optimize Your Revolver Debt Level

Modeling a cash sweep mechanism is essential for optimizing revolver debt levels and ensuring efficient cash utilization. Here’s a step-by-step breakdown of how to set it up:

1️⃣ Set Assumptions

Before starting, define key assumptions such as:

  • Minimum cash reserve requirement
  • Interest rate on revolver debt
  • Cash sweep percentage (e.g., % of excess cash allocated to debt repayment)
  • Fee on undrawn revolver balance

2️⃣ Pull Cash Flow Data

From your projected cash flow statement, pull:

  • Beginning cash balance
  • Operating cash flow
  • Investing cash flow

3️⃣ Calculate Available Cash for Debt Repayment

  • Determine the minimum cash reserve to ensure the company maintains sufficient liquidity.
  • Subtract this reserve from available cash to compute excess cash for repayment.

4️⃣ Allocate Mandatory Debt Repayments

  • Deduct any scheduled (mandatory) debt repayments first.
  • The remaining amount is available for cash sweep.

5️⃣ Adjust Revolver Debt Balance

  • If the cash sweep amount is positive, use it to reduce the revolver balance.
  • If it’s negative, the model draws additional revolver debt to cover cash shortfalls.

6️⃣ Monitor Revolver Capacity

  • Maintain a separate revolver capacity tracking table to ensure that drawn amounts do not exceed the available credit limit.

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