Overview · What & why
A decision, before a calculation.
Cash can reach partners through operations, refinancing or sale. Each event has a different source and may trigger different agreement provisions. Refinancing can return capital while the asset remains owned, but it also creates a debt obligation. A distribution should follow a cash-availability test before it follows a waterfall.
A concrete example
A refinance raises $8M, repays $7M and incurs $100K of costs. Only $900K remains before reserves. Distributing the full $8M would ignore the existing obligation and substantially overstate partner receipts.
What to remember
Establish distributable cash before allocating it.
Before using this in a project: Event statement, payoff quote, reserve requirements, transaction costs and the distribution agreement.