As we conclude our special series on leveraged loan recoveries, let’s take a look at one structure that is testing the way credit managers think about loan value.

Unitranche financings are so much a part of the middle market buyout landscape today, that it’s hard to imagine a time without them. Yet on the evolutionary time scale of LBOs, the one-stop, one-tranche option is a recent arrival.

As we’ve noted in a Lead Left whitepaper, the unitranche was a creature of the credit crisis. When visibility on loan buyers dried up amid 2008-09 market volatility, loan syndicators pulled back on forward underwriting commitments. That left private equity sponsors with a critical tool missing from their kits.

Allied Capital (subsequently acquired by Ares) and GE Antares formed the first unitranche partnership, which circumvented the syndication process. It also eliminated pricing and structural flex, as well as intercreditor issues between senior and junior capital providers. For a while, it was the only unitranche option.