Unitranche facilities have been a feature of the European and US markets for a number of years, and have recently been making their mark in Australia.
What is unitranche? A unitranche facility is a single facility which replaces the need for separate senior and mezzanine facilities and carries a blended margin. It tends to be provided by a single lender on a take-and-hold basis.
Where has it come from? Unitranche began life around 2005 in the US mid-market, and spread into Europe in the wake of the global financial crisis in 2008. European banks were forced to de-lever their balance sheets post-2008, and also saw themselves subjected to more stringent capital adequacy requirements under Basel III. Non-bank lenders, the main providers of unitranche, are outside the reach of Basel III and, having initially taken the opportunity to fill that funding gap, have since seized a large share of the European mid-market.
In this article, we provide a brief introduction to unitranche, focus on the intercreditor issues which can arise when it is combined with a revolving credit facility, and look at how unitranche is evolving in Europe and may one day develop in Australia.