This week Churchill’s Kelli Marti and Jessica Nels continue their special series on the capital markets outlook for 2022 [link] with a discussion of the unitranche trend.
Once considered a novel concept, the unitranche – a one-stop senior secured financing melding senior and subordinated tranches into one – has captured the attention of private equity sponsors and lenders alike. Both dollars (nearly $25 billion in issuances in 4Q21) and market share (36% of middle market LBO financings in 2021, up from 10% in 2016) are growing at a remarkable pace.
The one-stop’s popularity to finance M&A activity is driven by several compelling attributes. A single tranche eliminates inter-creditor negotiations and documentation. It also allows private credit managers with expanded hold positions to provide increasingly jumbo-sized unis executed by a small lender club.
This approach eliminates the need for a traditional, and often lengthy, syndication process. Thoma Bravo’s Stamps.com LBO was supported by a $2.7 billion uni which was reportedly distributed among only four lenders. As a private credit issuance, it further eliminates the need for a public debt rating; like the syndication, a costly, time consuming, and distracting proposition.