Unitranche Financing: Simplifying Complex Capital Structures

In the evolving landscape of structured debt finance, unitranche financing has emerged as a powerful tool for middle-market companies seeking growth capital. By combining senior and subordinated debt into a single facility, unitranche structures eliminate the complexity of managing multiple lender relationships while accelerating deal execution.

What is Unitranche Financing?

Unitranche financing is a hybrid debt structure that blends senior and subordinated debt into one loan facility with a single blended interest rate. Rather than negotiating separate senior and mezzanine tranches with different lenders, borrowers work with a single lender (or a small group of lenders) who provide the entire debt package.

This structure originated in the private credit markets during the 2008 financial crisis when traditional bank lending contracted. Private debt funds stepped in to fill the void, offering borrowers a streamlined alternative to the traditional "first lien + second lien" capital stack.

Key Advantages of Unitranche Structures

1. Simplified Execution

Traditional multi-tranche financings require coordination between senior lenders and subordinated lenders, each with their own documentation, covenants, and intercreditor agreements. Unitranche financing eliminates this complexity by consolidating negotiations with a single lender group. This reduces legal costs, shortens timelines, and minimizes the risk of deal friction between competing lender interests.

2. Speed to Market

In competitive M&A processes, speed matters. Unitranche lenders can move quickly because they don't need to coordinate with other capital providers. A unitranche facility can often close in 4-6 weeks versus 8-12 weeks for a traditional senior + mezzanine structure. For sponsors pursuing time-sensitive acquisitions, this velocity creates a meaningful competitive advantage.

3. Higher Leverage

Unitranche lenders typically offer leverage multiples of 5.0x–6.0x EBITDA, compared to 3.0x–4.0x from traditional senior lenders. This higher advance rate reduces the equity contribution required from sponsors, improving returns on invested capital. For companies with strong cash flow but limited tangible assets, unitranche financing can unlock significantly more debt capacity than asset-based lending.

4. Flexible Covenant Structures

Unitranche facilities often feature covenant-lite or maintenance covenant structures with higher cushions than traditional bank debt. This flexibility gives management teams more operational latitude to execute growth strategies without constant lender oversight. Many unitranche lenders focus on enterprise value creation rather than rigid financial metrics, aligning their interests with sponsors and management.

When Unitranche Makes Sense

Unitranche financing is particularly well-suited for:

• Sponsored Buyouts: Private equity firms value the speed and certainty of execution that unitranche provides in competitive auction processes.
• Growth Capital: Companies investing heavily in R&D, sales infrastructure, or geographic expansion benefit from the covenant flexibility and higher leverage.
• Refinancings: Borrowers looking to simplify their capital structure and reduce administrative burden often refinance into unitranche facilities.
• Add-On Acquisitions: Sponsors executing buy-and-build strategies appreciate the ability to fund bolt-on acquisitions quickly without renegotiating multiple lender relationships.

Pricing and Economics

Unitranche pricing typically ranges from L+550 to L+750 basis points, depending on leverage, industry, and credit quality. While this blended rate sits between senior debt (L+350–450) and mezzanine debt (L+900–1,200), the all-in cost is often comparable when factoring in the elimination of mezzanine fees, legal costs, and intercreditor complexity.

Most unitranche facilities include an original issue discount (OID) of 1-3% and may carry prepayment penalties in the first 2-3 years. However, borrowers gain the flexibility to prepay the entire facility at once, rather than navigating the payment waterfalls and intercreditor restrictions inherent in multi-tranche structures.

Potential Drawbacks

Despite its advantages, unitranche financing isn't appropriate for every situation:

• Higher All-In Cost: The blended rate exceeds senior debt pricing, making unitranche more expensive for borrowers who can access traditional bank financing.
• Limited Lender Universe: Unitranche is primarily offered by private credit funds, not traditional banks, which may limit options for certain borrowers.
• Concentration Risk: Relying on a single lender group creates dependency; if the relationship deteriorates, refinancing options may be limited.

The Future of Unitranche

As private credit markets continue to expand, unitranche financing is becoming the default structure for middle-market sponsored transactions. According to Pitchbook, unitranche facilities accounted for over 60% of private credit volume in 2025, up from 40% in 2020. This growth reflects both the maturation of the private credit asset class and borrowers' increasing comfort with non-bank lenders.

Looking ahead, we expect unitranche to penetrate deeper into the lower-middle market ($5M–$50M EBITDA) as regional private credit funds emerge to serve smaller sponsors. Additionally, the rise of direct lending platforms and technology-enabled underwriting is reducing the friction and cost of unitranche execution, making it accessible to a broader range of borrowers.

Conclusion

Unitranche financing represents a fundamental shift in how middle-market companies access growth capital. By eliminating the complexity of multi-tranche structures, unitranche enables faster execution, higher leverage, and greater operational flexibility. For sponsors and management teams focused on building enterprise value rather than managing lender relationships, unitranche has become the financing structure of choice.

At Pilothouse, we help borrowers evaluate whether unitranche financing aligns with their strategic objectives and capital structure goals. Our proprietary underwriting process and deep relationships with private credit funds ensure that our clients access the most competitive terms in the market.