Definition
A unitranche combines senior and junior risk in one drawn facility priced at a single blended margin, rather than splitting the capital into separately documented and separately priced layers. Where lenders share the facility, the relative priority of the more-senior and more-junior economics is often governed privately through an agreement among the lenders rather than shown as distinct public tranches. For valuation this is harder than pricing a single rated layer: there is no separate observable market for the senior and subordinated components, the blended coupon mixes two risk profiles, and the recovery position sits between where a pure senior and a pure junior claim would sit. Under IFRS 13 and ASC 820 the instrument is generally a Level 3 measurement, marked with a discounted-cash-flow model calibrated to the origination terms.
Why it matters in private credit valuation
- The single blended rate cannot be decomposed against observable senior and junior benchmarks, so the mark leans on a model and on the discount margin implied at origination.
- Recovery and priority depend on terms that are documented privately rather than priced by a market, which puts the weight on calibration and on a clear record of the assumptions.
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Glossary terms
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