Glossary / finance terms

Cash trap

A contractual mechanism that retains cash otherwise available for distribution when a specified test or event occurs.

Randeep Bubbra | Lawyer | Making the next generation of infrastructure financeableUpdated 26 October 2026

How it works

A cash trap holds back cash that would otherwise be paid to the owners when a test is failed or an event occurs. The cash stays in a controlled account. If the test is passed again it may be released; if the failure continues, it may be applied to repay debt.

In GPU and data centre deals

Cash traps are a standard protection in GPU loans and data centre ABS. They are usually triggered by a fall in DSCR, a customer default or a breach of a value test. Some GPU facilities convert a trap that lasts for a set number of months into a mandatory prepayment. In ABS, a cash trap is often the first step before rapid amortisation.

What gets negotiated

The trigger level and how it is calculated
How long cash stays trapped before it is released or applied to debt
Release conditions
Whether trapped cash can be used for capex or operating costs

Why the distinction matters

Identify the test date, calculation, cure and release conditions. Trapped cash may remain reserved rather than immediately reducing debt.

Read the structure

A practical reading of securitised data-centre cash flows, triggers and expected repayment.

Data centre ABS: follow the pool and the waterfall ↗

In the filed deals

IREN's Hardware 3 financing traps cash below 1.10x DSCR; a trap lasting six consecutive months becomes a Cash Trap Prepayment Event.

For in-house counsel

Cash trap in the filed documents

Where the term turns up in filed contracts and what is market, for the lender’s or the borrower’s side. Previews are open; the full text is free with InfraCompute Weekly.

What’s market: Cash trap level in GPU loansWhere do lenders set the DSCR cash trap in a GPU-backed loan?
What’s market: When a GPU loan cash trap turns into prepaymentHow long can a cash trap run before trapped cash must prepay the loan?
Clause library: Customer contract cash trap and contract value ratioCoreWeave's facilities key the cash trap to the customer contract, not just the ratio. A material breach of the master services…
The legal desk for in-house counselContract library, issues lists, checklists and English law notes.

Explanatory definition, not a statement that a particular transaction contains this term or a substitute for its contractual definition.

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