Unitranche Debt

Traditionally, leveraged buyouts and other acquisitions were financed with several layers of debt, each with different lenders, terms and priorities. Unitranche loans simplify this into one loan, usually provided by a direct lender or a small group of lenders.

For example, instead of borrowing 60,000,000 of senior debt and 20,000,000 of subordinated debt from different lenders, a company might take an 80,000,000 unitranche loan at a single interest rate between the two.

Unitranche financing is popular in the middle market, where private credit funds compete with banks. Its advantages include faster execution, simpler documentation, greater certainty of financing and a single lender relationship.

Behind the scenes, lenders may split the loan into first-out and last-out portions through a separate agreement among lenders, which affects who is repaid first in a default. Unitranche debt is typically more expensive than senior bank debt, but cheaper overall than a combination of senior and junior debt.