Private Credit, Direct Lending & Leveraged Buyouts
Unitranche First-Out / Last-Out AAL Yield Skim Formula
Model Private Credit Unitranche Agreement Among Lenders (AAL) tranche economics: Total Facility Size, First-Out Interest Skim Transferred FO*(S_blend - S_FO), Effective Last-Out Spread S_blend + (FO/LO)*(S_blend - S_FO), and Basis-Point Pickup.
Uncover hidden Last-Out yield enhancement inside synthetic Unitranche AAL waterfalls!
In middle-market Leveraged Buyouts (LBOs), private-credit direct lenders offer sponsors a single seamless Unitranche Credit Agreement at one blended margin S_blend over SOFR—eliminating separate First-Lien / Second-Lien intercreditor negotiations for the borrower! Behind the scenes, an Agreement Among Lenders (AAL) carves the loan into a super-priority commercial-bank First-Out (FO) tranche earning a lower senior spread S_FO < S_blend and a subordinated direct-lender Last-Out (LO) tranche that absorbs first credit losses in exchange for "skimming" the excess interest FO * (S_blend - S_FO) generated on the First-Out principal! Conservation of borrower interest dictates Effective Last-Out Spread S_LO = S_blend + (FO / LO) * (S_blend - S_FO)!
Verify in a direct-lending IC deal model—First_Out_Principal FO = $40.0M (B2), Last_Out_Principal LO = $60.0M (B3 -> Total Unitranche Facility = $100.0M in E2), Blended_Borrower_Spread S_blend = 0.0625 (6.25% = 625 bps, B4), and First_Out_Coupon_Spread S_FO = 0.0400 (4.00% = 400 bps, B5): Annual AAL Interest Skim transferred from FO to LO is $40M * (6.25% - 4.00%) = $0.90M/yr (E3); Effective Last-Out Spread is 6.25% + (40 / 60) * 2.25% = 0.0775 (7.75% in E4—check: $40M*4.00% + $60M*7.75% = $1.60M + $4.65M = $6.25M exact!); giving a +150.00 bps AAL Spread Pickup (E5)!
| Unitranche AAL Metric ($40M FO / $60M LO, Blended=6.25%, FO=4.00%) | Formula | Verified Output |
|---|---|---|
| Total Unitranche Facility ($M) | First_Out_M + Last_Out_M | $100.00M |
| Annual AAL Skim Dollar Flow ($M) | First_Out_M * (S_blend - S_FO) | $0.9000M/yr |
| Effective Last-Out Spread S_LO | S_blend + (FO / LO) * (S_blend - S_FO) | 0.0775 (7.75%; 8.50% @ 50/50) |
| Last-Out Yield Skim Pickup (bps) | 10000 * (S_LO - S_blend) | +150.00 bps (+225.00 bps @ 50/50) |
Agreement Among Lenders (AAL) Effective Last-Out Spread Formula
Validate FO >= 0, LO > 0, and senior priority spread ordering 0 < S_FO <= S_blend!
=LET(fo_m, B2, lo_m, B3, sp_b, B4, sp_f, B5, IF(OR(fo_m < 0, lo_m <= 0, sp_f <= 0, sp_b < sp_f), "Invalid AAL Tranche Structure", ROUND(sp_b + (fo_m / lo_m) * (sp_b - sp_f), 4)))50/50 Tranche Leverage Amplification Check (FO = $50M, LO = $50M)
Shift tranche sizing to B2 = 50 and B3 = 50 (1:1 FO/LO ratio): Effective Last-Out Spread E4 climbs to 0.0850 (8.50%), boosting AAL Pickup E5 to +225.00 bps!
=IF(ISTEXT(E4), E4, ROUND(10000 * (E4 - B4), 2))Try the example
Use the original values or change them to test your understanding.