What is a unitranche debt facility?

Unitranche is a flexible form of financing often used by mid-sized companies to help fund acquisitions or ownership transitions. It combines different types of secured and unsecured debt in a single loan with a blended interest rate and a predictable repayment schedule that gives a business maximum flexibility.

Is unitranche direct lending?

A unitranche facility offers a borrower many benefits. Its terms are typically more flexible and tailored to the borrower’s individual requirements. This reflects a desire by direct lending funds to engage in these transactions, committing to work with the borrower over the cycle.

Are unitranche loans secured?

Unitranche financing involves a single credit agreement and requires one set of collateral documents. It reduces the amount of documentation and paperwork that borrowers need to comply with before they can access funds.

What is a Folo loan?

FOLOs are a derivative of unitranche structures, allowing a single tranche of term loan to combine senior and junior debt with a blended interest component.

What is a unitranche structure?

What Is Unitranche Debt? Unitranche debt or financing represents a hybrid loan structure that combines senior debt and subordinated debt into one loan, allowing banks to compete better against private debt funds.

What is senior debt and subordinated debt?

Any debt that has a lesser priority over other forms of debt is considered subordinated debt. Any debt with higher priority over other forms of debt is considered senior debt.

How do PIK loans work?

PIK loans are a form of debt where the borrower pays interest as additional debt, rather than cash. Depending on how the PIK debt is structured, on each interest payment date the accrued interest is either added to the principal or is ‘paid’ by the issue of additional loan notes or bonds.

What is a Folo deal?

FOLOs are documented under a single credit facility, but behind the scenes, in a side agreement between the lenders (AAL), the loan is split into first-out and last-out pieces, where the last-out are paid more interest (given longer skin in the game).

What are the forms of subordinated debt?

Types of subordinated debt include high yield bonds, mezzanine with and without warrants, Payment in Kind (PIK) notes, and vendor notes, ordering from the highest to the lowest priorities, respectively. Another way to express the different priorities of securities is with a subordination scale.

What is a PIK structure?

What Is a Payment-In-Kind (PIK) Bond? A payment-in-kind (PIK) bond refers to a type of bond that pays interest in additional bonds rather than in cash during the initial period. The bond issuer incurs additional debt to create the new bonds for the interest payments.

Is Pik equity or debt?

PIK loans are a form of debt where the borrower pays interest as additional debt, rather than cash.

What is a Folo structure?

What is FOLO? The FOLO structure has been a popular and much-talked-about feature of the UK mid-market leveraged finance space for a number of years now. These structures typically involve the provision of non-amortising term debt (the so-called ‘last out facility’) by a credit fund (the ‘unitranche’ provider).