Agreement Among Lenders (AAL)
Private Credit glossary · Loan Structures & Instruments
Definition
A confidential agreement that internally bifurcates a unitranche loan between a First-Out (senior, bank-held, lower-coupon) tranche and a Last-Out (junior, direct-lender-held, higher-coupon) tranche, without disclosing the split to the borrower. The borrower sees a single facility at a blended rate; the AAL governs cash-flow allocation between the two holder classes in both performing and default scenarios. Enables lower-cost capital to participate in direct lending and lets direct lenders earn leveraged-like returns on their last-out positions.
Agreement Among Lenders (AAL) in plain English
A "unitranche" loan looks like one single loan to the borrower, at one blended interest rate — but behind the curtain it can secretly be split into two layers, and the Agreement Among Lenders (AAL) is the private contract that governs that split. One layer (held by a bank) is safer and gets paid first at a lower rate; the other (held by a direct lender) is riskier, gets paid last, and earns a higher rate. The borrower never sees this division — it's like two friends privately agreeing who gets repaid first on a loan they jointly made, while the person who borrowed only knows there's one debt. This setup lets cheap bank money and higher-returning private money team up in the same deal.
Also called: AAL
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