The rate sheet is the last question, not the first. Most of the surplus is spoken for before it earns anything, and the largest bank already holds more than the policy allows.
A relationship manager offers a term deposit at 2.60 per cent. A money market fund
on the other screen pays 2.90 per cent. On 120,608,000.00 the difference is
361,824.00 a year — 0.2154 per cent of
EBITDA, and 6.9156 per cent of a single day's disbursements. The yield does not decide
this question. What the 361,824.00 buys or costs in liquidity, credit and
accounting does.
Three yields, and their proportion
Instrument
Rate
Annual income
Money market fund
2.90 per cent
3,497,632.00
Treasury bills
2.75 per cent
3,316,720.00
Bank deposit
2.60 per cent
3,135,808.00
Best less worst
361,824.00
The fund earns 180,912.00 more than the bills and 361,824.00 more than the deposit, on 120,608,000.00.
Security, then liquidity, then yield
The order is not negotiable, and the reason is that most of the surplus is not surplus. Minimum
liquidity on this company is 124,596,281.16: the operating float of
31,392,000.00, a forecast-error reserve of 31,204,281.16 and a seasonal
peak of 62,000,000.00. The float has already been taken out of available cash, so the part
the surplus is tested against is 93,204,281.16 — which leaves
27,403,718.84, or
5.2377 days of payments, genuinely spare.
So 93,204,281.16 of the 120,608,000.00 is the reserve and the
peak, held in advance against a bad quarter. Security first, because a loss of principal on the
reserve is a hole in the minimum. Liquidity second, because a reserve that cannot be reached in
the week the forecast error arrives is not a reserve. Yield third, because the whole distance
between the best and worst choice is 361,824.00, and the distance between
having and not having 120,608,000.00 in a bad quarter is the company.
The concentration test
The largest bank holds 41 per cent of reported cash, which on
214,000,000.00 is 87,740,000.00. The policy limit is
25 per cent, or 53,500,000.00. The excess is
34,240,000.00.
It did not arrive by accident and it will not leave by memo. That bank is the revolver agent,
the holder of the concentration account and the payment bank. The 68,400,000.00 cleared on
the concentration account this morning is 31.9626 per cent of reported cash on
its own — over the limit before a single deposit is placed — and the rest,
19,340,000.00, is what the deposit proposal would add to. Moved into the fund
instead, the excess would earn 102,720.00
more; for once the concentration test and the yield point the same way.
What a bank failure does to a deposit
A deposit is not cash held at a bank. It is an unsecured loan to the bank, and on the morning
the bank fails it becomes a claim ranking with the bank's other unsecured creditors, for whatever
the resolution eventually pays and whenever it pays it. For a company with a daily payment run of
5,232,000.00, a claim of that shape is not liquidity in any reading of the
word.
The failure of the largest bank takes more than the 87,740,000.00. It takes the
concentration account, so the 68,400,000.00 that was same-day cash this morning is frozen;
it takes the payment rails, so tomorrow's run has no bank to leave from; and it takes the agent of
the revolver. Where the bank is also a lender, set-off between deposit and loan may run in the
company's favour or against it, depending on what the documents say — which is a thing to
read before the morning it is needed.
The fund is not free of this either. It spreads issuer risk, which is the point, but it can
restrict redemptions under its own rules in a stressed market, and its assets are marked, not
guaranteed. Bills carry the sovereign's credit and no bank's, and their price for that is the
180,912.00 they earn less than the fund. None of the three is the safe one. Each is a
different counterparty.
The ladder, built from the forecast
Nothing should be locked for longer than the thirteen-week forecast can see, and inside the
thirteen weeks each part of the surplus has a date.
Part of the surplus
Tenor it belongs at
Amount
Forecast-error reserve
overnight — needed in any week
31,204,281.16
Seasonal peak
at term, maturing into the build it pays for
62,000,000.00
Above the minimum
where the forecast says, if at all
27,403,718.84
Available cash
rolled every week as the forecast rolls
120,608,000.00
A ladder built to pick up yield sets the tenors from the curve and consults the forecast afterwards. The difference shows on the day a maturity is needed a fortnight early.
The three numbers to put beside the yield
The next time the surplus comes up, the number on the table will be a rate. Let it sit there
while three others are put beside it. The share of the surplus inside the minimum liquidity:
93,204,281.16 of 120,608,000.00, with
27,403,718.84 outside it. The largest bank's share of cash against the
policy limit: 41 per cent against 25 per cent, an excess of
34,240,000.00. And the week of the thirteen-week forecast into which each piece
matures.
Only then the yield: 361,824.00 between the best and the worst choice, and
worth having if the three answers above are unchanged by taking it.
The workbook behind this article
Every figure above is a live formula in the companion files for
Treasury Management — the five readings of cash, the liquidity
test, working capital and the discount, and the hedging book. Each file ends with a Checks
sheet setting the printed figure beside the computed one. They are free, and they need no
account and no email address.
At what wealth does a family office pay?A five-person office costs the same $2,442,000 at $100m as at $2bn. Against a tiered multi-family schedule the two curves cross exactly once.
Does an undrawn revolver count as liquidity?67.4567 per cent of the headroom, and it leaves at a fall in annual revenue of 8.4127 per cent — not the 13.3333 per cent the board deck implies.
Does supply chain finance count as debt?66,049,315 released, and leverage of 2.7622× or 3.1362× depending on which balance the test is asked of — the second is a breach at today's EBITDA.
Does the fulcrum move with enterprise value?A worked capital structure at three enterprise values. The break migrates from the first lien to the subordinated notes without a single document changing.
How many companies does a reserve pool defend?Holding pro rata to the Series D costs $14.76m per company. A $40m reserve defends 2.71 of forty — and 61 per cent of the cost is the last round.
How much room a 1.15x downside actually leaves79 basis points of margin. The leverage covenant fails first, five basis points before the coverage covenant the chapter reports on, and 4.6 per cent of EBITDA is the whole cushion.
How the GP catch-up is actually solvedMost write-ups state the catch-up formula then hardcode the answer. Set it as a solve and it moves on its own when the carry rate does.
How do you set a minimum cash balance?Three components, 124,596,281 in total — and the double count that turns a margin of 27,403,719 into an apparent shortfall of -3,988,281.
Is a 2/10 net 60 discount worth taking?An annualised 14.8980 per cent against a revolver at 4.50 per cent — worth 5,471,890 a year, and 0.3132 turns of reported leverage.
Should corporate debt be fixed or floating?78.1818 per cent of gross debt fixed, and a net floating exposure after cash of -608,000.00 — the proportion, not the instrument.
Six ways to state the same fund's return7.12 per cent, 18.04 per cent, or 1.323 times the public market — one fund, one set of flows. The eleven-point gap is the valuation, and it is not cash.
The IRR at which a closed-ended fund merely tiesA drawdown fund advertising 13.25 per cent ties an evergreen netting 8.64. On committed rather than called capital, 78.7 per cent of the edge vanishes.
The month a remediation trigger has to be armed byMonth 8, on a one-year window and a 14-week hiring lead time. The date is 12W − L/4.33 and holds for any portfolio size — the book only changes the euros.
Two routes to the same NAVFive findings in one quarter-end close, and not one of them was a modelling error. Every one was a control that did not exist.
What a CBAM certificate buffer costs to holdCarry and protection are both linear in the buffer, so the break-even probability is identical at 5 per cent and at 30 — and 2027 costs exactly twice 2026.
What a clawback actually collateralises24 million recovers 13.20 net of tax and 7.20 is escrowed. The rule is e ≥ 1 − t, and every euro won on the tax clause lands uncollateralised.
What a co-investment programme actually saves37 basis points, and a 22.8 per cent total-loss rate erases it. At the usual per-deal cap a single failure is 37 per cent of the annual cohort.
What a diligence exercise actually recoversEighteen basis points is only the part that reaches the yield. Three of the four instruments never do, and the exercise is worth thirty-one.
What a follow-on reserve is actually worth0.019 turns under plain dilution, 0.285 under pay-to-play. The optimum is a property of the shareholders’ agreement, not of the portfolio.
What a lease mark-to-market is actually worth5,788,000 becomes 807,365 once the over-market stream, the expiry dates and the cost of re-letting are priced — and nothing at all below a 43.7 per cent renewal rate.
What a minimum payment actually does£81.53 leaves the account and £20.46 reaches the debt. On minimums alone the set clears in 258 months and repays 1.78 times what was borrowed.
What a month of delay costs in an enforcement463,000 euros of present value a month. No single error about enforcement, and no pair of errors, moves the indifference point from 58.7 cents to the 72 on the table.
What a pro rata cheque actually costsDefending costs 1.25 times the initial cheque across two rounds, not more in each — and below a 521 exit the follow-on dollars come back worth less than they cost.
What a subscription line does to the IRR20 per cent becomes 38.41 on the same asset while the multiple falls. Two dollars of interest buys 18.4 points, and the longer the line runs the cheaper each point gets.
What one point of fees actually costsOne point on the annual charge turns 738,846 into 567,961 over forty years — 23 per cent of the pot, and 2.43 of wealth lost per 1 of fee.
When the promote stops clearingCarried interest is not proportional to performance near the hurdle. It is a step function, and $2m of headroom is what stands between a promote and none.
Why a secondaries bid-ask gap has no zoneThe seller’s floor and the buyer’s ceiling are one formula at two rates. At equal required returns the zone is exactly zero — here it is 11.02 points apart.
Why refining a due diligence rubric makes it weakerThree of twelve managers carry a terminal flaw and the average approves all three. Splitting eight domains into sixteen makes it easier to hide, not harder.