Cashflow Waterfall

In a securitised lending pool, investors are divided into different tranches, each with its own level of risk and return. When the borrower repays interest and principal, these cashflows must be distributed to the tranches in a predefined order. This predefined order is called the cashflow waterfall.

A waterfall determines who gets paid first, how much they receive, and when junior investors start receiving their share. Because each tranche carries a different level of protection and priority, the design of the waterfall directly affects:

• Investor risk

• Expected yield

• Speed of principal repayment

• Protection against defaults

Qiro supports two common waterfall structures for distributing repayments:

• Sequential Waterfall — cashflows flow top-down, prioritising Senior investors before paying Junior investors.

• Pro-Rata Waterfall — cashflows are shared proportionally between tranches, while still preserving seniority on overdue amounts and interest.

These waterfall patterns form the core of how tranching works and define the economic relationship between Senior and Junior investors in a pool.