Capital & Financing

Unitranche Facilities

One facility, one rate, one counterparty — and behind it, a first-out/last-out split in a document the borrower may never see. Learn what the unitranche actually is and where its risk hides.

  • Expert
  • 12 min total
  • 13 chapters

What decision this helps you make: Whether to finance with a unitranche or a syndicated first-lien/second-lien package, and what to ask about the agreement among lenders before you sign.

What this topic is

A unitranche is a single senior secured facility, at a single blended interest rate, documented in one credit agreement with one agent. Where more than one lender participates, the economics are usually split behind the scenes into a first-out tranche and a last-out tranche by an agreement among lenders — a contract among the lenders to which the borrower is not a party and which it often does not see.

Why it matters

The unitranche is how most middle-market and a growing share of upper-middle-market leveraged financings are now done. For a borrower it collapses two lender groups into one, removes the intercreditor negotiation, and shortens execution from weeks to days. For lenders it moves the priority fight out of a document with decades of case law behind it into one with almost none. Both of those facts matter, and only the first one usually gets discussed.

Who should learn it

Sponsors and CFOs choosing between private credit and the syndicated market, direct lenders and credit funds structuring first-out and last-out participations, and advisers who need to explain what a borrower is and is not agreeing to.

What you will understand

  • How a single blended rate is constructed from a first-out and last-out split
  • What an agreement among lenders contains and why the borrower usually does not see it
  • The unresolved legal question of how an agreement among lenders is treated in a bankruptcy case
  • When a unitranche genuinely beats a two-lien structure and when it does not

Prerequisites

Common misconception

"A unitranche means there is only one lender, so there is no priority problem." Almost never true at any size. In most unitranche facilities of scale, at least two lenders have divided the facility into a first-out slice priced like a senior loan and a last-out slice priced like junior debt, in an agreement among lenders that governs waterfall, voting and enforcement. The priority problem has not been removed. It has been relocated to a contract the borrower cannot read and a body of law that barely exists.