Security Package & Loan Documentation
Cash Sweep Clauses
Summary
A cash sweep requires defined surplus cash to be applied to debt reduction or a specified controlled account rather than being fully distributed to shareholders.
Why this matters in ship finance
It can accelerate deleveraging during strong freight markets and buffer downside when future earnings weaken.
The concept
Triggers may be scheduled or linked to cash flow, LTV, DSCR or covenant breach; the calculation must define cash available after operating costs, taxes, reserves and permitted investments.
How it is used in practice
Model each sweep trigger, threshold, payment timing and interaction with voluntary prepayment fees and balloon maturity.
Practical issues
Sweeping all cash may undermine dry-dock liquidity and regulatory investment. Avoid double-counting swept cash as free liquidity and accelerated amortisation simultaneously.
How ShipFinance.ai uses this concept
Display contractual cash waterfalls and the trade-off between liquidity and debt reduction.
Key takeaways
- Define the calculation base precisely
- Protect maintenance and operating reserves
- A sweep changes both liquidity and leverage