Unitranche
LBOA single blended debt facility replacing separate senior and subordinated tranches, usually provided by a private credit fund.
A unitranche combines what would traditionally be senior and junior debt into one instrument at one blended rate, provided by a single lender or a small club rather than syndicated to a broad market.
Its appeal to a sponsor is speed and certainty. One lender, one document, one negotiation, and no syndication risk, which matters enormously in a competitive auction where deal certainty can beat a higher price.
The cost is a higher rate than the senior portion would have carried alone, and often tighter documentation than a broadly syndicated deal. The borrower is paying for execution certainty.
It is the instrument behind the growth of private credit in European mid market buyouts, where direct lending funds now compete directly with bank led syndicated structures.
Worked example
A syndicated structure offers 4.0x senior at 4.5% plus 1.5x subordinated at 9%, a blended 5.7% across 5.5x.
A direct lending fund offers 5.5x as a single unitranche at 6.5%, in one document with no syndication risk.
The sponsor pays roughly 44 more of interest a year on 550 of debt and gets certainty of funding within two weeks. In a competitive auction that certainty is frequently worth more than the spread.