Unitranche financing began as a middle-market product, tracing its origins to the days of recovery from the global credit crisis. The credit markets re-opened with an explosion of available capital from traditional lenders, business development companies and other direct lenders. With an increasing supply of capital, leverage shifted to borrowers and private equity, allowing them to better dictate the terms and conditions of their loan facilities. With the greater prevalence of so-called “covenant-lite” loans, also came the exponential growth of the unitranche market. What began as a financing structure most often used for loans of less than $50 million, unitranche loans are now regularly used for financings exceeding $1 billion, and in 2021, up to $3 billion. A unitranche facility combines the benefits of multi-tranche debt regularly found in the syndicated lending markets (i.e., the ability to raise funds from lenders with different risk profiles and return expectations), with those of speed and certainty that are a hallmark of the private lending community. In its simplest form, unitranche facilities are structured using a single-tier, combing the senior and junior components of syndicated loans into one loan. Whereas a syndicated loan may require distinct grants of senior and junior liens on collateral to multiple lending groups, a unitranche uses a single lien to secure the entire facility. The benefits to the borrower are obvious: it is faced with a single term loan: one set of principal and interest payments, a single package of covenants to monitor, and a uniform list of defaults to avoid. Layering on the advantage of a single agent, a unitranche facility greatly streamlines loan administration from the borrower’s perspective.
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