If it isn’t in the operating agreement and PPM, it isn’t in your waterfall—marketing summaries are not binding economics.
At a glance
- Definition: A waterfall is the contractual order for distributing cash among lenders, reserves, investors, and sponsor—each deal defines its own layers.
- Preferred return: Typically a priority on available cash, not a bond coupon—subject to definitions, accrual, and shortfalls in the documents.
- Splits: Promote and investor/sponsor splits apply only after hurdles defined in the OA— compare “headline” percentages to actual clause text.
- Stoneforge context: We describe typical frameworks on investment structure; exact numbers vary by offering.
Common building blocks
- Preferred return: A priority return to equity investors on contributed capital, subject to cash availability and document wording (not a guaranteed coupon).
- Catch-up / split: After the preferred hurdle is met (per definitions), remaining cash may split between investors and sponsor—for example 70% / 30%—only as written in the deal.
- Return of capital: Order of principal return at refinance or sale is defined in documents—not assumed from summaries.
Stoneforge framework (high level)
We describe our typical preferred-return and split framework on investment structure. Exact economics vary by transaction and must match the signed agreements.
Why “document-first” diligence
Terms like “8% pref” can differ on accrual, compounding, and shortfalls. Investors should review waterfalls with counsel and tax advisors before subscribing.
Reading order in the operating agreement
In practice, diligencing a waterfall means tracing definitions (what counts as distributable cash), timing (monthly vs quarterly, lender traps), catch-up language (if any), and liquidating events (how sale proceeds sequence relative to return of capital). Two deals with the same “8% / 70-30” headline can behave differently after you read the clauses.
Vocabulary vs your subscription documents
Articles like this one establish vocabulary only. Your subscription economics—including whether a preferred return compounds, whether shortfalls accrue, and how refinancing interacts with return of capital—exist solely in the executed agreements for that offering. Pair this overview with 8% preferred returns explained and the firm’s legal & compliance disclosures before investing.
Contact | Preferred return article | Legal & compliance
This overview is not an offering. Consult the PPM and subscription documents for any specific syndication.