Unitranche finance: one loan instead of two

What is unitranche?

Unitranche is a form of financing that combines senior and junior debt into a single loan, with one blended interest rate, one agreement and one lender. Instead of two separate negotiations with a bank and a mezzanine provider, you arrange everything in one go.

The main benefits

• Simplicity: one credit agreement, one security package, one set of covenants
• Speed: no coordination between parties with conflicting interests
• Certainty of execution: important in a bidding process with a deadline
• Flexible repayment: often fully repayable as a bullet payment at maturity

What does it cost?

The interest rate sits between senior and mezzanine rates: typically 8% to 12%. That may seem more expensive than a bank loan, but you save on transaction costs, advisory fees and time. With a combined bank and mezzanine structure, the weighted costs are often comparable.

When is unitranche the best choice?

1. For acquisitions on a tight schedule — sellers choose the buyer who can complete quickly and reliably
2. For buy-and-build strategies — you can often expand the facility through an accordion option for follow-on acquisitions
3. If your business model does not fit standard bank criteria — for example, software with recurring revenue but few assets

Points to consider

• Concentration risk: you depend on a single lender. Investigate who is behind it and how that party behaves when things go wrong.
• Non-call period: you often cannot repay without a penalty during the first one or two years.
• Super senior working capital: a bank may also provide an overdraft facility that ranks ahead of the unitranche. Arrange this in advance.

Conclusion

Unitranche has become the workhorse structure for mid-market acquisitions. Choose it when speed, certainty and simplicity matter more than the last half a percentage point of interest.