The Cash Sweep clause

The Cash Sweep clause is another type of clause that protects the interests of the creditor. It may be applied in a deal when the liability is repaid in installments or interest is paid on the principal amount.

It consists in obliging the debtor to overpay an installment (interest on) the receivable, i.e. to pay a larger installment than specified in the contract – if the debtor has a surplus of cash flows in a given settlement period. One of the most important elements of the clause, especially from the point of view of the debtor’s interests, is to include the method of calculating that surplus.

The use of the cash sweep clause is undoubtedly beneficial for the creditor, but not necessarily for the debtor – although it may accelerate the repayment of the liability, it deprives him of the possibility to freely dispose of part of the assets.

Maksymilian Marciniak, Lawyer