Recovery waterfall model
Claims by class, priority, recovery, the fulcrum. Distribute a restructured company’s value by an assumed priority ranking across a range of enterprise values, identify the fulcrum security in each, and calculate the return on each traded class at an assumed purchase price.
Built in: Investment banking, Equity research and hedge funds, Private equity
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: recovery waterfall model.Updated 1 October 2026
Who builds it, and for whatAn early model a restructuring banker, a distressed debt investor or a creditor committee’s adviser builds, and one that restructuring negotiations are conducted around. It shows who receives what at each plausible enterprise value, which class is the fulcrum and so is likely to receive the equity, and what each traded class returns if bought at an assumed market price. The arithmetic is mechanical; the value range is what the parties negotiate.
Every sheet below, in your browser. Sign in free to change the inputs and watch it recalculate
Starter workbook free with an account. Worked model: one a month with Plus, every one with Pro. Downloads
| A | B | C | D | E | F | G | H | I | |
|---|---|---|---|---|---|---|---|---|---|
| 1 | Assumptions | ||||||||
| 2 | $m unless stated. The priority ranking used is set out on the Claims sheet. | ||||||||
| 4 | Value case | Unit | Low | Low-mid | Mid | Mid-high | High | Notes | |
| 5 | Enterprise value | ||||||||
| 6 | Run-rate EBITDA after the restructuring | $m | 60.0 | ||||||
| 7 | EV / EBITDA multiple | x | 4.5x | 5.3x | 6.0x | 6.8x | 7.5x | One multiple per value case | |
| 8 | Distributable cash on emergence | $m | 5.0 | ||||||
| 9 | Collateral share of value | % | 90.0% | Of value after DIP and administrative claims; the rest is unencumbered | |||||
| 11 | Assumed market prices | ||||||||
| 12 | First lien price | % of face | 88.0% | 0.88 = 88 cents on the dollar | |||||
| 13 | Second lien notes price | % of face | 35.0% | 0.35 = 35 cents on the dollar | |||||
| 14 | Senior unsecured notes price | % of face | 12.0% | 0.12 = 12 cents on the dollar | |||||
| 15 | Subordinated notes price | % of face | 3.0% | 0.03 = 3 cents on the dollar | |||||
Select a cell to see its row, its schedule and the type of cell. Font colours: blue for inputs, black for formulas, green for links to other sheets. Scroll sideways to see every period.
Download
Recovery waterfall model: the workbook
Excel workbook with working formulas, no macros and no external links. Work with it above first; it is the same model as the preview.
What the base case says
- Enterprise value, middle case
- $360.0m
- Fulcrum security, middle case
- Second lien
- First lien recovery, middle case
- 100.0%
- Second lien recovery, middle case
- 26.4%
- Senior unsecured recovery, middle case
- 12.0%
- Second lien return on purchase price
- -24.6%
Read from the workbook as served, every input at its default. Periods: Low, Low-mid, Mid, Mid-high, High. The figures are invented and move with whatever you type in.
What this model is
A recovery waterfall for a company in restructuring, at five enterprise values. Value is allocated by an assumed priority ranking: the DIP facility and administrative claims first, secured lenders from their collateral in lien order, unsecured claims pro rata, subordinated notes behind the senior notes, and existing equity last.
Each column is a value case, not a year. The fulcrum security, the most senior class not repaid in full, is identified in each case; it is typically the class that receives most of the equity in the reorganised company.
Uses: testing how the value range, the DIP facility and the collateral share move recoveries and the fulcrum, and comparing recovery with the assumed market price of each traded class.
Seats: Investment banking, Equity research and hedge funds, Private equity.
Careers that do this work: investment banking, debt capital markets, restructuring, private credit, distressed & special situations, private equity.
How the schedules connect
Every row in the workbook is tagged with the schedule it belongs to; the inspector above shows the tag when you click a row. These are the schedules this model is made of and where each one lives.
Claims by class
The claims register a recovery is built on
Claims, rows 5–6 · Claims, rows 9–15 · Claims, rows 18–22
Absolute priority distribution
Value paid out by seniority, collateral first
Assumptions, rows 6–9 · Waterfall, rows 6–12 · Waterfall, rows 15–19 · Waterfall, rows 22–29 · Waterfall, rows 32–37
Fulcrum analysis and implied returns
Which class is the fulcrum, and what it returns
Assumptions, rows 12–15 · Returns, rows 6–11 · Returns, row 14 · Returns, rows 17–20 · Returns, rows 23–24 · Summary, rows 5–12 · Summary, rows 15–16
What you should be able to explain
- The priority ranking this model assumes: new money and administrative claims, secured classes from collateral in lien order, unsecured claims pro rata, subordinated debt, equity.
- Why an undersecured lender also appears in the unsecured pool, as a deficiency claim.
- What contractual subordination does in a distribution, and why trade creditors do not benefit from it.
- How to find the fulcrum security, and why it typically receives the equity of the reorganised company.
- How a purchase price turns a recovery (a % of claim) into a return on price, and which value case the price implies.
What a reviewer looks for
- Secured lenders paid from total value rather than from their collateral.
- Deficiency claims forgotten, so the unsecured pool is shared among too few claims.
- Subordinated notes paid pro rata with the senior notes they are subordinated to.
- Accrued interest after the filing date added to an undersecured claim.
- A single enterprise value, when the point of the exercise is the range.
Conventions this workbook uses
Stated on the cover sheet too. A model is only as trustworthy as the decisions it tells you it made.
- Claims are principal plus interest accrued to the filing date. Post-filing interest is excluded, including for any class that is oversecured in the higher value cases.
- The priority ranking and collateral allocation are illustrative assumptions. Secured classes recover from collateral only, in lien order; any shortfall becomes an unsecured deficiency claim that shares in the unsecured pool with the notes and general unsecured claims.
- The collateral share is a single input applied to value after the DIP facility and administrative claims. In practice collateral is assessed asset by asset (unpledged subsidiaries, intellectual property, cash outside the lenders’ control).
- Subordination is contractual and is applied as a turnover: the subordinated notes’ pro rata share goes to the senior notes until they are paid in full. General unsecured creditors do not benefit from the subordination.
- Market prices are entered as decimals of face value: 0.35 is 35 cents on the dollar. Recovery is a % of claim; return on purchase price is recovery divided by price, less one, undiscounted and before the time to emergence.
Build it yourself
The starter workbook
The Waterfall sheet has been cleared: the value to distribute, secured recoveries from collateral and the deficiency claims, the unsecured pool shared pro rata, the subordination turnover and the residual to existing equity. Build it so that the Returns sheet identifies the fulcrum security in each value case. The Checks sheet shows when all value is allocated exactly once.
Blanks: Absolute priority distribution. Free with any account. Compare with the worked model when you are done: download above.
The path around this model
Understand it, drill it, read the build, then apply it to a real company.
Build · Lab · ~15 min
Capital Stack Challenge
Finance a real buyout from revolver to equity, hold it through a shock, and explain every layer against the deal the sponsor actually did.
Read · Guide · 8 min
Restructuring Interview Questions: Fulcrum, Waterfall & Beyond
Read · Guide · 11 min
Credit and Covenant Modelling: What a Lender Actually Tests
Apply · Skill
Model Audit
Find the errors in a financial model before someone senior does.
Vocabulary: Recovery Waterfall, Absolute Priority Rule, Fulcrum Security, Debtor-in-Possession (DIP) Financing, Deficiency Claim, Contractual Subordination, Pari Passu, Second Lien, Cents on the Dollar, Distressed Debt.
Questions about this model
What is the fulcrum security?
The most senior class that is not paid in full at the enterprise value being considered. Every class above it is covered; every class below it receives little or nothing. Because its recovery depends on the value of the reorganised business, it usually receives that business’s equity, which is why distressed investors buy it.
Why do secured lenders appear twice?
A secured lender recovers from its collateral first. If the collateral is worth less than the claim, the shortfall is a deficiency claim, which is unsecured and shares pro rata with the notes and trade creditors in whatever unencumbered value is left. The model carries both pieces and adds them for the class’s total recovery.
How is the DIP facility sized?
From the liquidity the company needs to get through the process: the peak shortfall in a 13-week cash flow forecast plus a cushion. It is new money with super-priority, so it is paid before everyone else, and every dollar of it comes out of what the existing creditors recover.
What does subordination change?
The subordinated notes’ pro rata share of the unsecured pool is turned over to the senior notes until they are paid in full. General unsecured creditors are not party to that agreement and receive no benefit, so the senior notes recover more than trade claims of the same rank.
What does it cost?
Nothing to preview: the whole workbook is on this page, and a free account works with it online, every formula included. Every starter workbook downloads with a free account. L3VLUP Plus ($4.99/month) keeps one worked model each billing month, yours for good, and L3VLUP Pro ($25/month) keeps every one.
Related models
Credit and restructuring · Core
13-week cash flow model
Weekly receipts, disbursements, revolver, liquidity
Credit and restructuring · Advanced
Credit model
Debt capacity, covenants, sweep, maturities, recovery
M&A and private equity · Core
Leveraged buyout model
Sources and uses, a cash sweep, sponsor returns