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Unitranche: a bespoke financing option for SMEs

Unitranche debt is gaining traction among Europe’s mid-caps. On a continent where small and medium-sized companies have long been short on financing options, this can only be a good thing.

Evidence of unitranche’s growing popularity is everywhere. Earlier this month, Apax Partners signed a unitranche debt facility to support its €200m acquisition of French higher education provider INSEEC Group. More significantly, Barclays and BlueBay Asset Management’s Direct Lending Fund have announced they were joining forces to provide such loans to mid-caps in the UK.

Last year, only 24 unitranche deals were signed. But that was over twice as many as in 2012, according to debt adviser Altium.

The proponents of unitranche are delighted. Where sub-investment grade companies used to rely exclusively on complex debt structures, they now regularly opt to combine first and second lien credit facilities into a single debt instrument, with the entire loan subject to the same terms.

For small treasury teams, this simplification has obvious perks. Rather than obtain funding from several banks and countless investors in the capital markets, leveraged SMEs can obtain smaller amounts from only one or two partners. Mid-caps are able to raise the debt that they need, and no more, within a shorter lapse of time.

But as ever more leveraged companies turn to this simplified loan variant, corporate treasurers should bear in mind that for more ambitious projects, unitranche can only ever fall short.

Barclays’ partnership with BlueBay, for instance, will provide debt of no more than £120m. And pricing on such debt is, by all accounts, substantially higher than on traditional leveraged loans.

But these setbacks should not discourage corporate treasurers, banks and institutional investors from considering involvement in this growing market. Unitranche debt provides a solution for SME financing. Some have already tried it. Many more should follow suit.

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