Distribution waterfall
Debt service, reserves, lock-up, equity.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: distribution waterfall.Updated 30 September 2026
What it does
The contractual order in which project cash is applied, modelled as an order rather than described as one. CFADS pays senior debt service; what is left tops up the debt service reserve and funds the maintenance reserve; and equity is paid only if the period’s DSCR is at or above the lock-up threshold. When the test fails the cash is trapped in the project and carried forward; when it passes again, the trapped balance is released with that period’s cash.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Waterfall, rows 6–8: Cash available for debt service, Less senior debt service, Cash after debt service
- Waterfall, rows 26–32: Cash available to equity before the test, Debt outstanding (1), Lock-up test met (1): DSCR at or above the lock-up, or no debt outstanding, Trapped cash, opening…
What a reviewer looks for
- A lock-up described in a note but not applied, so the equity IRR counts cash that would have been trapped.
- Trapped cash released without the test passing again.
- Distributions in construction periods.
Learn it, then build it
Vocabulary: Distribution Lock-Up, Covenant.