Unitranche
Unitranche is a single blended debt facility that combines senior and subordinated debt into one loan with one interest rate.
Allocator relevance: Common private credit structure—risk sits between senior secured and mezzanine, so covenants and underwriting matter.
Expanded Definition
Unitranche simplifies capital structure for borrowers by providing one loan rather than multiple tranches. For lenders, returns are higher than pure senior debt but typically involve greater risk, depending on leverage, collateral coverage, and covenant strength. Some unitranche deals include internal “first-out/last-out” arrangements among lenders.
Allocators evaluate unitranche strategies by default-cycle performance, covenant enforcement, and concentration discipline.
How It Works in Practice
A private credit fund originates a unitranche loan to a sponsor-backed company. The borrower pays a blended coupon; the lender monitors performance and enforces covenants if needed.
Decision Authority and Governance
Governance includes underwriting standards, leverage limits, and covenant requirements. Workouts and restructurings require experienced teams.
Common Misconceptions
- Unitranche is always secured and safe.
- Blended rate implies blended risk uniformly.
- Unitranche behaves like senior secured debt.
Key Takeaways
- Unitranche risk depends on leverage, collateral, and covenants.
- Strong underwriting is the differentiator.
- Downside behavior matters more than headline yield.