Waterfall

Definition

Waterfall in plain English

When money flows in from a pool of loans, there's a strict order for who gets paid — and the 'waterfall' is that ordered list of steps. Cash fills the top priority first (usually fees and the safest investors), and only what's left spills down to the next claimant, and the next, until the money runs out. The people at the bottom only get paid if everyone above them was fully paid — which is exactly why the top spots are the safest. It works just like a tiered champagne fountain: the top glass fills completely before anything overflows to the ones below.

Learn these first

• Revolving period
• Securitization

Related Asset-Backed Securities terms

• Available funds cap
• Cash flow waterfall priority
• Cash trapping
• Charge-off
• Collection period
• Cumulative net loss (CNL)
• Delinquency
• Early amortization
• Excess interest collections
• Excess spread