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Message: [QUOTE="FfldCntyFan, post: 5044541, member: 71"] There would normally be a structured waterfall with a subordinate preferred return. This is where it woulg get very dangerous for the schools. Funds received from operations (after hold backs for expenses and scheduled reserves) are distributed through the waterfall. If the investors (PE fund) doesn't receive a full anticipated portion (revenues are lower than expected) the shortfall accrues interest and cannot be repaid until there is an excess from a future waterfall. This is part a on how the PE fund gets what would eventually amount to a near usury level return. The preferred return is normally based on the finds initially advanced, offset by projected cash flows over the life of the agreement. The critical parts here are that cash flows should increase over time, leaving the early payments as a more difficult hurdle to overcome. There often is additional language (which on the surface appears to help the borrower but in reality is there to ensure compounded preferred return interest) that doesn't allow pref payments until an additional reserve has been reached (preventing on time payments unless there is a considerable surplus) and often, as this reserve is not among the mandatory reserves, most of the surplus funds (when they arrive) are also run through the waterfall for distribution. I know of too many cases where a PE firm appeared to be an angel investor until a few years in, when the true nature of the return of funds structure was realized. The schools that end up involved with this would be better off looking for loan sharks. [/QUOTE]

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