Module IV· Debt TranchesBasic
Question
What are the typical debt tranches in an LBO capital structure (from senior to junior)?
Answer
Subordination hierarchy (senior → junior)
| # | Tranche | Coupon (2024) | Share |
|---|---|---|---|
| 1 | RCF | SOFR + 350-400 | 0-10% |
| 2 | TLA (banks) | SOFR + 350-400 | 10-30% |
| 3 | TLB (institutional) | SOFR + 400-500 | 30-50% |
| 4 | Second Lien | SOFR + 700-900 | 0-15% |
| 5 | Mezzanine / HY | 8-12% Cash + 3-5% PIK | 0-15% |
| 6 | Shareholder Loan / Holdco PIK | 8-12% PIK | 5-15% |
| 7 | Sponsor Equity | — | 30-50% |
Pitch tip
In the middle market, often a single Unitranche rather than a TLA/TLB split.