Introduction
Bank debt, in addition to revolving lines of credit, typically takes two forms: Term Loan A: This layer of debt typically amortizes evenly over 5-7 years. Term Loan B: This layer of debt typically involves nominal amortization (repayment) over 5-8 years, with a large one-time payment in the final year.
How does a unit loan work?
Unitranche is a form of flexible financing often used by mid-sized companies to help finance acquisitions or transfers of ownership. It combines different types of secured and unsecured debt into a single loan with a blended interest rate and a predictable payment schedule that gives the business maximum flexibility.
Is a tranche a term loan?
Typically, a single tranche line of credit is a single tranche term loan with a combined senior/junior interest rate. It is usually documented in a single loan agreement.
What is unitranche in private debt?
What is unit debt? Debt or tranche financing represents a hybrid loan structure that combines senior debt and subordinated debt into a single loan, allowing banks to better compete with private debt funds.
Is the senior unit insured?
Single-tranche debt financing structure
Governed by a single credit agreement, single-tranche loans combine senior debt and subordinated debt in a single line of credit. Therefore, the arate first and second lien facilities operate as one secured loan facility.
What are single leg installations?
1 What is a single bay installation? Traditionally, a single tranche facility is a single tranche term facility combining senior and junior risk (“Classic Unitranche”). It has a single interest rate that the borrower must pay, consisting of a combined senior/junior rate.
What is a first-out, last-out loan?
The first-out lender is generally paid first based on its performance and principal repayments after an event of default or the exercise of recourse. The last lender to exit receives what remains after the first to exit has been paid in full.
What is the bullet repayment loan?
A lump sum payment is a one-time payment made for the entire outstanding amount of a loan, usually at maturity. It can also be a one-time payment of the principal of a bond. In banking and real estate, the lump sum loan is also called a balloon loan.
What are the differences between senior debt unit and mezzanine?
Single-tranche financing is becoming increasingly popular. It is essentially a riage between senior bank debt and mezzanine debt. The big advantage is a one stop shop for the borrower. So instead of having senior and mezzanine lenders, there is one lender who takes on all the credit risk.
What is an example of private credit?
Notable examples of private credit include specialty loans, residential loans, and direct business loans.
Conclusion
Senior debt has the highest priority and therefore the lowest risk. Therefore, this type of debt usually carries or offers lower interest rates. Meanwhile, subordinated debt carries higher interest rates given its lower priority in repayment. Banks typically fund senior debt.
