What is a waterfall in banking?
In banking, debt structuring, and corporate finance, a "waterfall" refers to a precise, hierarchical payment mechanism that dictates the chronological order in which incoming cash flows, revenues, or asset liquidation proceeds are distributed among various creditors and equity stakeholders. Under a standard debt waterfall, senior secured lenders are paid first in full, followed by mezzanine debt holders, unsecured creditors, and finally equity shareholders. This cascading structure ensures that higher-priority claimants receive their interest and principal repayments before lower-tier participants access residual cash distributions.
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