Unitranche loans combine what would otherwise be separate first and second lien facilities into a single secured loan facility with a single interest rate based on the separate rates applicable to the senior and junior components of the loan.

As a technical matter, the loan is divided into distinct first and second lien components, with the first lien component having lien priority over the second lien component in the same way as in a traditional first lien-second lien financing. However, from the borrower's perspective this is largely irrelevant because a unitranche loan is structured as a single debt instrument, where all the debt is subject to the same terms. In a unitranche loan, the borrower is not involved in and is typically not aware of the intercreditor arrangements governing the respective components of its loan. These intercreditor arrangements are usually documented in an agreement among lenders.

Unitranche loans are used primarily in middle-market transactions. For more information about unitranche loans, see Practice Note, Unitranche Loan Financing.