What is Payment Waterfall?

The priority order in which cashflows from a loan pool are distributed to different classes of investors.

A payment waterfall defines the sequence in which principal and interest payments are allocated when a loan pool has been structured into multiple tranches or classes. Senior tranches receive payments first; subordinate tranches receive payments only after senior claims are satisfied. In a simple senior/subordinate structure, the senior tranche absorbs no losses until the subordinate tranche is completely wiped out. Waterfalls become complex in structured products (CLOs, CMBS, RMBS) with multiple tranches, reserve accounts, overcollateralization triggers, and interest rate swaps. For whole loan trading, waterfall analysis is relevant when evaluating participation structures or warehouse facilities.

How LoanBook Uses Payment Waterfall

LoanBook's warehouse funding module implements waterfall logic for multi-CU participation structures. The advance rate, margin, and loss allocation follow a defined waterfall between the originator and CU participants.

Frequently Asked Questions

Do whole loan trades have waterfalls?

Simple whole loan trades do not; the buyer receives all cashflows pro-rata. But structured trades (participations with different priority levels, warehouse facilities, securitizations) use waterfall allocation to distribute cashflows among multiple parties.