What is a multi tranche loan?
A multitranche financing facility (MFF) establishes a longer-term partnership between ADB and a client in a sector(s) under sovereign operations, and enables ADB to provide a series of tranches (loans1 or guarantees) as and when the investments for such sector(s) are ready and the client requests for financing.
What does loan tranche mean?
What Are Tranches? Tranches are segments created from a pool of securities—usually debt instruments such as bonds or mortgages—that are divvied up by risk, time to maturity, or other characteristics in order to be marketable to different investors. Tranche is a French word meaning slice or portion.
How do loan tranches work?
Tranches are a collection of securities that are separated and grouped based on various characteristics and sold to investors. Tranches can have different maturities, credit ratings, and yields—or interest rates. For example, several baskets of loans could be offered that have varying interest rates.
What are the different tranches of debt?
Multiple tranches of debt are commonly used to finance LBOs, and may including any of the following tranches of capital listed in descending order of seniority:
- Revolving Credit Facility (“Revolver”)
- Bank Debt.
- High-Yield Debt (“Subordinated Notes”, “Junk Bonds”)
- Mezzanine Debt.
- Seller Notes.
- Securitization.
- Common Equity.
What is a mezzanine tranche?
A mezzanine tranche is a small layer positioned between the senior tranche (mostly AAA) and a junior tranche (unrated, typically called equity tranche). Ideally the role of a mezzanine tranche is to be able to reduce the weighted average cost of the asset-backed securities issued.
Who buys mezzanine debt?
A mezzanine lender is generally brought into a buyout to displace some of the capital that would usually be invested by an equity investor. Mezzanine debt takes up some of the financing that an equity investor would otherwise chip in. Suppose a private equity firm wants to buy a $100 million company.