Tranche
Private Credit glossary · Loan Structures & Instruments
Definition
A distinct slice of a structured debt facility with its own priority, pricing, amortization, and tenor. Common tranches: Revolver (committed undrawn, 25–50 bps commitment fee), Term Loan A (bank-held, amortizing), Term Loan B (institutional, bullet), DDTL (delayed-draw, ticking fee), Second Lien (junior to first lien on same collateral). In CLOs, tranches are rated AAA-down-to-BB with the unrated equity tranche absorbing first losses.
Tranche in plain English
When a company borrows a big pile of money, lenders rarely hand it over as one plain loan. Instead they cut the deal into slices — tranches (French for "slice") — and each slice has its own rules: who gets paid back first, what interest rate it charges, and how long it lasts. Think of boarding a plane in groups: first-class boards (and gets paid) first and pays the most for that privilege, while the back rows board last and take on more risk if things go wrong. So a "first lien" tranche gets first claim on the company's assets if it fails, while a "second lien" or equity tranche sits further back in line and earns more to compensate for the extra danger.
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