A unitranche combines senior and junior debt into a single facility with a single blended margin, provided by one lender or a small club. A traditional stack splits the same total debt into a cheaper senior tranche from a bank and a more expensive mezzanine tranche from a fund, held together by an intercreditor agreement.
| Factor | Unitranche | Senior + mezzanine |
|---|---|---|
| Execution | One lender, one set of documents, faster | Two lenders, intercreditor, slower |
| Blended cost | Usually higher headline margin | Often lower blended cost at moderate leverage |
| Amortisation | Typically minimal or bullet | Senior tranche usually amortises |
| Covenants | Often one, with wide headroom | Bank-style maintenance covenants |
| Prepayment | Call protection in early years | Senior flexible; mezz call protection |
| Problems | One counterparty to negotiate with | Two creditor classes with different interests |
How we decide
We model both structures on the same forecast, including arrangement fees, amortisation, cash sweeps and prepayment costs, over the borrower's realistic holding period. If the business plans to refinance or sell within three years, call protection can outweigh a margin difference. If the plan includes acquisitions, the flexibility of a single lender with a delayed-draw tranche is often worth paying for.
The answer differs deal by deal, which is precisely why the choice should be made with both options on the table.
General information, not advice on any specific transaction. See Disclosures.