Unitranches Help in Mid-Market Deal Flow

Unitranche lending has become popular and is a new label for a traditional approach known as a one stop lending. With a unitranche, a company receives all of its loans from one lender in one package. That is to say, you receive a line of credit, a senior term loan and a junior term loan all wrapped into one loan. The appeal to unitranche is the efficiency of getting all of the capital from a single source.

With fewer parties involved in the deal, you have a higher certainty of close and can get to a quicker close. Unitranche has grown out of the private equity world into the direct lending segment where companies are now able to access for a variety of reasons, having nothing to do with buyouts.

Often, it is the junior term loan that gives the unitranche that extra appeal to a borrower, and differentiates it from a regular bank loan. This helps companies get their hands on more capital to invest or acquire and grow at an accelerated rate. This generates more deal flow for the mid-market because it gives companies more dry powder to use for acquisitions and industry roll-ups.

Ambitious companies need funding companies behind them to allow them acquire and grow. A unitranche loan gives these companies capital strength. The simplicity of the loan also helps tremendously in the closing process for mid-market companies. Often, these deals are hard to close and overly complex when there are more than one lender. By eliminating the need to have an intercreditor agreement between two lenders, the unitranche brings a level of harmony to the closing table.

This also means only one set of loan documents which streamlines the legal process. Unitranche loans are available to companies with EBITDA greater than $8 million so they are still out of reach for most mid-market companies. But as this loan structure becomes more mainstream, it will become increasingly accessible to smaller companies as well.

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