Unitranche Financing

Definition - What does Unitranche Financing mean?

Unitranche financing is hybrid loan structure that combines senior debt and subordinated debt into one amount bearing a blended interest rate that would usually fall between the rate for the two types of debt. This type of financing is mostly aimed at middle market companies and used by private equity in leveraged buyouts.

Divestopedia explains Unitranche Financing

Under unitranche financing, one lender provides the entire credit with a single set of documents. This can provide a number of benefits to the borrower as follows:

  • Simplifies the documentation and reduces the paperwork for borrowers because there is just one credit agreement and a single set of collateral documents.

  • Accelerates the acquisition process because buyers don't need to find and negotiate with two separate lenders for the senior and mezzanine debt. As well, since the loan documentation is much simpler, unitranche loans can be pulled together more quickly.

  • Saves the borrower money because only one agreement will need to be drafted and reviewed by a single legal team for the lender.

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