Unitranche debt: one facility, one covenant set, more leverage.

The fund advances the full amount at completion, takes a first-ranking debenture over the acquiring group and a share pledge over the target, and expects the principal back as a bullet at maturity, typically six to seven years out or on an earlier sale or refinancing. Interest is paid quarterly on a floating basis, with part of the margin occasionally rolled up as payment in kind where the business needs the cash for growth. Because nothing amortises, free cash flow that a bank would have swept into capital repayment stays available for capital expenditure, hiring or the next acquisition.

Most facilities sit alongside a small super senior revolving credit facility from a bank for day-to-day working capital, because funds do not want to manage an overdraft and banks are content to sit at the front of a queue on a modest exposure. Buy-and-build platforms also negotiate committed acquisition and capex lines within the same agreement, with pre-agreed conditions for drawing them, so a bolt-on can be funded in weeks rather than restarting a credit process. Prepayment protection in the first one to two years is normal, and worth negotiating hard if an early refinancing is likely.

All-in unitranche pricing across our panel runs at an indicative 10% to 13% all-in, quoted as compounded SONIA plus a margin, indicative as of September 2026. Senior bank debt sits lower at an indicative 7% to 10% all-in and mezzanine higher at an indicative 12% to 18% including PIK once payment-in-kind interest is counted. Compare unitranche with either layer alone and it looks expensive or cheap depending on which you pick, which is why the only comparison that means anything is the blended cost of the whole structure.

Run a two-layer structure of £15 million senior at 8.5% and £5 million mezzanine at 14% and the blended cost of £20 million of debt is about 9.9%, plus two sets of fees, two due diligence processes and an intercreditor negotiation. A £22 million unitranche at 11.5% costs more in cash interest but delivers more debt, one process and no amortisation, and the equity saved is often worth more to sponsor returns than the extra margin costs. Where the mezzanine layer would have carried warrants, the arithmetic tilts further towards unitranche. Illustrative figures only.

Compare the layers directly: senior debt · mezzanine finance · cash flow lending

A straight unitranche is exactly what it appears to be: one fund holding the whole facility. A bifurcated unitranche looks identical to the borrower but is split privately between two lenders under an agreement among lenders. A bank or a lower-risk fund takes the first-out piece, ranking ahead for repayment at a lower margin, while the original fund keeps the last-out piece behind it at a higher margin. The blended rate the borrower pays does not change; the risk and return are simply re-cut between the lenders.

The borrower still cares, for two reasons. First, the agreement among lenders governs who controls enforcement, who can accelerate and who votes on amendments, so a request for covenant relief may need the agreement of a lender you have never met. Second, the split explains why a fund can quote a competitive blended margin at high leverage: it is laying off the safest part of the exposure. Ask early whether a quoted facility is straight or bifurcated, and make sure the intercreditor position is clear before you sign heads of terms.

Realistically, EBITDA above £3 million to £5 million, because the funds have minimum ticket sizes and the diligence cost does not scale down. Above that threshold the product suits recurring-revenue and contracted businesses: software and technology, business services, healthcare, specialist manufacturing with long-term customer relationships, and consolidation platforms buying smaller competitors. It suits sponsor-backed deals, larger management buyouts and secondary buyouts where the incoming owner wants leverage without a syndicate.

It suits some businesses badly. Cyclical earnings, heavy customer concentration, thin cash conversion or an asset-rich balance sheet all point elsewhere: a bank facility, cash flow lending or an asset based structure will usually cost less and fit better. Names active in this market include Ares Management, Barings, Pemberton, Tikehau Capital, Arcmont Asset Management, CVC Credit, illustrative of the panel rather than a recommendation, and appetite varies by sector and deal size at any given time. We are not a lender: we size the facility, run a competitive process and negotiate the terms.