Why Unitranche Loans Grew From Niche to Billions

Who needs banks? Sure, they’ve long dominated the market for big corporate loans, with their access to large sums of money and expertise in complex tasks like splitting loans up via syndication. But what if borrowing billions didn’t have to be so complicated -- if there were other lenders with deep pockets and a simpler, faster approach? That’s the appeal of so-called unitranche loans, one of the hottest parts of the very hot market known as direct lending.

Normally, corporate debt comes in different layers known as tranches that have different borrowing costs depending on how risky the slice of debt is considered. Holders of senior debt are first in the pecking order to be repaid if a company runs into financial difficulty, while subordinated debt owners are the ones more likely to get stuck with a loss if payment falters; in return, they get paid a higher interest rate. The mechanics of a multi-tranche debt offering can be staggeringly complex. A unitranche loan? It skips all that.