Meaning
Operational cash control triggers measure liquidity thresholds against minimum safety buffers set in credit facilities. A cash dominion agreement grants senior lenders direct authority to reroute incoming customer payments toward debt service when borrowing availability falls below specified levels. The mechanism shifts banking operations from unblocked operational accounts to lender-controlled lockboxes during periods of financial tightness.
Secured creditors use this contractual right to prevent cash dissipation and ensure priority debt repayment before operating expenses are disbursed.
Activation Trigger
Specified financial covenants determine when cash management authority transfers to senior lenders. The activation of cash dominion depends on available liquidity dropping below a predetermined dollar amount or percentage of the borrowing base. Lenders monitor daily liquidity reports to detect breaches immediately.
Control Level
Full control requirements eliminate executive discretion over daily corporate cash disbursements. Under full cash dominion, all incoming revenues automatically sweep into lender-controlled accounts to pay down outstanding revolver balances every afternoon. The business must request re-borrowing approval daily to pay trade payables and payroll.
Partial control structures leave daily operations untouched until a formal covenant breach triggers full sweep mechanisms.
Account Intercept
Deposit account control agreements establish legal control over corporate bank accounts without liquidating the enterprise. Activating cash dominion forces third-party depositary banks to follow lender payment instructions directly, bypassing executive treasury officers. Suppliers and employees face payment delays when operating cash sweeps into loan paydowns ahead of trade obligations.
