Senior Tranche

Nick Name
Parent term
Senior Tranches are the highest tranche of security. Classified into senior and super-senior tranches, these are triple-A-rated (AAA) tranches with very low-interest rates and very low associated risk. In the world of investing, it is used to describe a security that can be split up into smaller pieces and subsequently sold to investors, with its total value usually the largest, sometimes comprising up to 80% of the entire security. Senior tranches typically have higher credit ratings and are paid before junior tranches in the event of the issuer's bankruptcy or liquidation. They have the first lien on underlying assets, typically first in the line to be repaid. The typical buyers of senior tranches are insurance firms, pension funds, and conduits.

  • Senior tranches are typically rated Tripple A or Double A
  • Senior tranches have the lowest return and lowest risk in the capital structure
  • Senior tranches are usually not expected to experience any/much loss of capital