Genuine question, never done a waterfall and would appreciate the help. If it says 10% preferred return to LP before any capital may be returned, then 70lp/30gp promote after all Lp return and 10% pref. Does this mean I first gather the 10% of available cash flow in the first hurdle, then anything remaining is distributed 70/30?
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It would be 10% of the investment amount + interest accrued at 10%. Once that has passed you can move on to the next one. think of it as one of those champagne cup fountains. It has to fill up one ring before it can move to another
Just to confirm, it would peg 10% of total available cash flow plus the 10% of their equity share then whatever is available it goes 50/50?
No, all cash flow goes to paying that return. There's no x% of cash flows going towards the waterfall. All of the free cash flow goes towards it. Once that 10% (plus in this case, the LP gets their money back) then whatever is remaining goes to the next tier. You have to fulfill each tier before moving on to the next with whatever is leftover.
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