Asked by: Nivia Oyarbide
personal finance mutual funds

What is senior tranche?

Last Updated: 22nd June, 2020

35
A senior tranche is the highest tranche of a security, i.e. the one deemed least risky. Any losses on the value of the security are only experienced in the senior tranche once all other tranches have lost all their value. For this safety, the senior tranche pays the lowest rate of interest.

Click to see full answer.

Also know, what is a debt tranche?

Tranches are pieces of a pooled collection of securities, usually debt instruments, that are split up by risk or other characteristics in order to be marketable to different investors.

Subsequently, question is, what is a mezzanine tranche? A mezzanine tranche is a small layer positioned between the senior tranche (mostly AAA) and a junior tranche (unrated, typically called equity tranche). Ideally the role of a mezzanine tranche is to be able to reduce the weighted average cost of the asset-backed securities issued.

Correspondingly, what is a tranche investment?

"Tranche" is a French word meaning "slice" or "portion." In the world of investing, it is used to describe a security that can be split up into smaller pieces and subsequently sold to investors. These securities can be partitioned based on, say, their maturities or their ratings to appeal to different buyers.

What is a junior tranche?

A junior tranche is the lowest tranche of a security, i.e. the one deemed most risky. Any losses on the value of the security are absorbed by the junior tranche before any other tranche, but for accepting this risk the junior tranche pays the highest rate of interest.

Related Question Answers

Bhajan Jeffreys

Professional

What is tranching of credit risk?

Tranches are sophisticated financial products that allow investors to choose very specific risk and reward portions. Tranches from the early years of a mortgage bundle are low risk and low return. Z-tranches are the riskiest. They only pay out once the other tranches are paid.

Darrin Aziago

Professional

What is a Trounch?

A traunch is one of a series of payments to be paid out over a specified period, subject to certain performance metrics being achieved. It is commonly used in venture capital (VC) circles to refer to the fundraising rounds used to fund startup companies.

Neide Vivirito

Professional

What is a tranche number?

In structured finance, a tranche is one of a number of related securities offered as part of the same transaction. The word tranche is French for 'slice', 'section', 'series', or 'portion', and is a cognate of the English 'trench' ('ditch').

Lokapala Villano

Explainer

What does first tranche mean?

First Tranche means the Farmout Wells included in the First Tranche Drilling Program. First Tranche means the subscription to the First Tranche Subscription Securities at the First Tranche Subscription Price.

Khadime Boumaaza

Explainer

What is a Libor tranche?

Definition of LIBOR Tranche. LIBOR Tranche means a portion of the Loan outstanding for a specific LIBOR Interest Period and bearing interest at a fixed rate based upon LIBOR (Adjusted).

Lazara Dou

Explainer

What is a tranche in project management?

The purpose of this tranche is to manage resource capacity, in the process establishing one version of the truth w.r.t. resources, projects and interdependencies. The PIC takes control of all projects, intuitively determining priorities and allocating funds and resources accordingly.

Rishikesh Pesca

Pundit

What is a subordinated tranche?

Bond tranches are usually portions of mortgage-backed-securities that are offered at the same time and usually carry different risks, rewards, and maturities.

Nazarena Musoles

Pundit

What is credit tranching?

Credit tranche refers to a system of releasing loan funds in phases that the International Monetary Fund (IMF) uses to govern its lending activities with member countries. When a member nation applies for a loan to help with economic difficulties, the IMF will disburse the loan in a series of credit tranches.

Onelio Queijo

Pundit

Why do people buy bonds?

Investors buy bonds because: They provide a predictable income stream. Typically, bonds pay interest twice a year. If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing.

Yoanna Danilyuk

Pundit

What is a tranche of documents?

The word tranche is French for slice, section, series, or portion, and is cognate to English trench. Transaction documentation usually defines the tranches as different "classes" of notes, each identified by letter with different bond credit ratings.

Eveline Corrigan

Pundit

What is CDO in finance?

CDOs, or collateralized debt obligations, are financial tools that banks use to repackage individual loans into a product sold to investors on the secondary market. These packages consist of auto loans, credit card debt, mortgages or corporate debt.

M Derenthal

Teacher

What is a tranche of salmon?

Tranche. Rate & Review. A slice of meat, fish or poultry that is cut across the fillet at an angle, exposing more surface area, making the piece appear larger.

Edgardo Eckhart

Teacher

What are securities products?

In the United States, a security is a tradable financial asset of any kind. Securities are broadly categorized into: debt securities (e.g., banknotes, bonds and debentures) equity securities (e.g., common stocks) derivatives (e.g., forwards, futures, options, and swaps).

Shi Vaikule

Teacher

How are bonds used in finance?

Bonds are loans, or IOUs, but you serve as the bank. You loan your money to a company, a city, the government – and they promise to pay you back in full, with regular interest payments. A city may sell bonds to raise money to build a bridge, while the federal government issues bonds to finance its spiraling debts.

Bushra Porokhov

Teacher

Are collateralized debt obligations derivatives?

Not all collateralized debt obligations (CDOs) are credit derivatives. Essentially, a CDO is held up by a pool of assets that generate cash. A CDO only becomes a derivative when it is used in conjunction with credit default swaps (CDS), in which case it becomes a Synthetic CDO.

Domnino Putzhofen

Reviewer

How does CDO work?

A collateralized debt obligation (CDO) is a structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors. The tranches in a CDO vary substantially in their risk profiles.

Cletus Triphaus

Reviewer

What is structured finance in banking?

Structured finance is a sector of finance, specifically financial law that manages leverage and risk. Strategies may involve legal and corporate restructuring, off balance sheet accounting, or the use of financial instruments.

Ragnar Quichaud

Reviewer

What is the difference between senior and mezzanine debt?

Mezzanine debt is a hybrid form of capital that is part loan and part investment. Senior debt is a loan from a bank. There are many differences between the two. Mezzanine debt is not collateralized by assets and is usually in the second position with assets.

Manel Longobardi

Reviewer

What is mezzanine finance explain with example?

Mezzanine financing definition is nothing but a kind of financing that has both features of debt and equity financing that provides lenders the right to convert its loan into equity in case of a default (only after the private equity companies and other senior debts are paid off)