Tranche
Asset-Backed Securities glossary · Collateral & Cash Flow Modeling
Definition
A bond class in a structured transaction, defined by payment priority, credit rating, coupon, and other terms.
Tranche in plain English
When loans are pooled and turned into bonds, the deal is cut into different classes called tranches (French for "slices"), and each slice has its own rules — its place in line to get paid, its credit rating, its interest rate, and so on. The point is that one pool of loans can be turned into products for very different investors: cautious buyers take a safe, first-in-line slice with a modest yield, while risk-takers grab a lower slice that pays more but eats losses first. Think of a concert with front-row, mid-tier, and nosebleed tickets — same show, but the price, the perks, and who gets bumped if seats get cut all depend on which tier you bought. "Tranche" is the general word for any one of those slices.
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