What is a Pro-Rata Tranche
A pro-rata tranche is a portion of a syndicated loan that is made up of a revolving credit facility and an amortizing term loan.
BREAKING DOWN Pro-Rata Tranche
The pro-rata tranche is usually syndicated by banks, as opposed to institutional tranches, which are primarily comprised of non-bank lending institutions. Both tranches may often be found within the same syndicated loan. Pro-rata tranches are common within the leveraged loan market or in loans to companies with existing high debt loads.
Within the pro-rata tranche, the revolving credit line will typically have the same ending or maturity date as the term loan. By forming a syndicate, banks involved in the deal can spread the credit risks among several lenders. Pro-rata tranches have historically been much larger than institutional tranches in terms of dollar size.