Deal StructureFinance
The Payment Waterfall
Also known as: Priority stack, creditor waterfall, debt priority cascade
TO-original framework. Every dollar flows through a priority stack. Senior debt drinks first. Seller notes drink second — if there's anything left. Subordination determines whether the founder ever sees the money.
WHY IT MATTERS
Introduced in D.8 (Subordinated Seller Notes). Every dollar the company generates flows through a priority stack. Senior debt drinks first. Seller notes drink second — if there's anything left. Subordination doesn't just affect timing; it determines whether the founder ever sees the money. In the Crossfield deal, NCB's senior debt sat ahead of $15M in seller notes. When Ridgeline added bolt-on acquisitions and grew the senior debt balance, the covenant headroom tightened. The founders' ability to collect principal depended on a debt ratio they couldn't see, governed by a lending agreement they weren't party to.