LBOs Turn to More Traditional Loans as Unitranche Costs Rise

Leveraged buyout sponsors are becoming less enamored of big unitranche loans, a financing vehicle made popular by private credit firms, as increasing costs make traditional structures more attractive.

Unitranches, a combination of senior and junior capital loans into a single facility, boomed in the past two years as private-equity firms needed fast financing to win LBO deals. So-called direct lenders have been able to band together and offer a unitranche much more quickly than a banking syndicate can find investors interested in a dual-tranche approach with different payment priorities and interest rates.

But with the Federal Reserve raising rates ...