Resources / Glossary / Unitranche

Unitranche.

Aka. Unitranche facility · Unitranche loan
All terms

What is a unitranche?

A unitranche is a single loan facility that combines what would otherwise be separate senior and subordinated layers of debt into one instrument, charged at one blended interest rate. Instead of a borrower stacking a first-lien term loan beneath a second-lien or mezzanine piece, a unitranche delivers the whole quantum in a single document with a single lender or small club.

It is the signature product of private-credit direct lending. A borrower deals with one counterparty, signs one credit agreement, and pays one rate that prices the blended risk of the combined structure — simpler and faster than syndicating multiple tranches in the public markets.

The blended rate sits between what pure senior debt and pure junior debt would each cost. The lender accepts more risk than a first-lien-only position would carry, and the borrower pays more than first-lien pricing but less than it would pay to assemble the layers separately, with far less execution friction.

How a unitranche actually works

To the borrower a unitranche looks like one loan; behind it, lenders may carve up the risk privately.

  1. Underwrite the whole. A direct lender commits the full facility against one credit agreement, often with speed and certainty the syndicated market cannot match.
  2. Blend the rate. The borrower pays a single spread reflecting the combined senior-plus-junior risk profile.
  3. Split internally, sometimes. Multiple lenders may sit behind the facility and agree, through an agreement among lenders, how to divide cash flow and losses into a notional first-out and last-out.
  4. Stay private. The facility is typically held to maturity by the original lenders rather than traded, so the borrower keeps a stable, known counterparty.

The first-out / last-out structure

Although the borrower sees one loan, the lenders behind a unitranche often split the economics through an agreement among lenders (AAL). A first-out piece is paid first and behaves like senior debt; a last-out piece is paid after it and absorbs the junior risk in exchange for a higher return.

This split is invisible to the borrower — the credit agreement is unchanged — but it lets lenders match different risk appetites to one facility. The AAL governs how proceeds and losses are allocated between first-out and last-out if the credit deteriorates.

Frequently asked.

4 questions
01 How is a unitranche different from a traditional senior/sub structure?

A traditional structure layers separate facilities — a senior loan beneath a subordinated or mezzanine piece — each with its own document, lenders, and pricing. A unitranche collapses those layers into one facility, one agreement, and one blended rate, usually provided by a private-credit lender rather than syndicated.

02 Why do borrowers choose a unitranche?

Speed, certainty, and simplicity. A single direct lender can commit and close quickly, deal with one counterparty instead of several, and avoid the syndication risk of the broadly syndicated market. For mid-market sponsors on a tight deal timeline, that execution certainty is often worth the somewhat higher blended cost.

03 What is an agreement among lenders?

An agreement among lenders (AAL) is the private contract that splits a unitranche into first-out and last-out positions and dictates how cash flow and losses are allocated between them. It governs the lenders' relationship without changing the single credit agreement the borrower signed.

04 Is unitranche debt senior or subordinated?

It is functionally both at once — a blend. The facility holds the combined senior and junior risk in one instrument. Where lenders have split it internally into first-out and last-out, the first-out behaves like senior debt and the last-out like subordinated debt, but the borrower's obligation is a single unified loan.

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