Selling a put option while holding enough cash to buy the underlying asset. As mentioned above, the sale of assets can trigger repayments with excess cash flows, but some assets are excluded. InventoryInventoryInventory is a current asset account on the balance sheet that includes all commodities, work in progress, and finished products that a company has accumulated. It is often considered the most illiquid of all current assets – therefore, in the quick calculation of the ratio, it is excluded from the numerator. is an example of this. Companies buy and sell inventory to generate operating profit as a resource to support their subsequent day-to-day operations. Therefore, the sale of inventory is generally not included in excess cash flow conditions as a trigger for repayments. Guarantee trancheA specific level or segment of REMIC securities. A REMIC tranche structured in such a way that it absorbs a disproportionate proportion of the volatility caused by fluctuations in advance payments of the underlying collateral. Accompanying tranches are created to be more volatile, so other tranches of the same REMIC, called CAP or TAC tranches, may have more stable cash flows. Hence the name companion.
Also known as support tranches. Excess cash flows refer to cash held by a company that can trigger a mandatory debt repayment under the company`s obligation agreement. This is a term typically used in restrictive covenantsTrust or negative covenants are a type of non-financial covenants that prevent the borrower from engaging in a particular activity or holding it in loan or bond contracts. Concentration accountA cash management tool. A single account set up by a company, usually in conjunction with one or more zero-balance payment accounts. Sometimes the concentration account is called the parent account, while the associated zero-balance accounts are called daughter or daughter accounts. Free cash flow and excess cash flow are two different concepts. Free cash flow refers to the company`s remaining cash after deducting its operating costs and investments.
Shareholders measure a company`s free cash flow to understand whether the company can make cash distributions after financing its operations and capital expenditures. There is a standardized calculation method for free cash flow. Cross-sectional guarantee A term sometimes used to describe a guarantee of a loan to a borrowing company if the borrowing company is related to the guarantor company by co-ownership but is neither a parent company nor a subsidiary. For the purposes of this definition, the borrower and guarantor do not necessarily have to meet the accounting definition of affiliates. Excess cash flows are a term used in loan agreements or bonds that refers to the portion of a company`s cash flow that needs to be repaid to a lender. Excess cash flows are typically cash received or generated by a business in the form of income or investments that trigger a payment to the lender, as stated in its loan agreement. As with any financial measure, there are limits to using excess cash flow as a measure of a company`s performance. The amount considered excess is determined by the lender and does not represent the actual cash flow of the company, as elements are excluded from its calculation to help the company improve its performance to ensure the repayment of the debt. (2) The amount of deposit balances necessary to offset the costs of deposits, cash management or other banking services. During each period, usually monthly, the actual bank charges applicable to the services used by the depositor are used to determine the amount of the remaining balances with the bank. Adjustments will be made to reduce the amount of deposits for reserve requirements and free floats.
See Account analysis. Cash flow recovery clause A disposition of a loan agreement or bond agreement that requires the borrower to apply excess cash flow (or a certain percentage of excess cash flow) to reduce the balance of outstanding debt. Because the Company has an outstanding loan from one or more creditors, certain cash flows are subject to various allocations or restrictions on the use of the Company. Lenders therefore set restrictions on how excess cash can be spent to maintain control over the company`s cash flows. But the lender must also ensure that these restrictions and restrictions are not so severe that they hinder the financial capacity or growth capacity of the business, which could ultimately cause harm to the lender itself. .
