In the modern economic world, very often you can find such a thing as a tranche. What is it, try to figure it out.
General definition of the term
So, the tranche represents the issue of certain securities, as well as a certain share of a bond type loan issued in separate series. There is also another definition of the term "tranche" - that it is a loan or credit, transferred to the borrower in the form of a one-time portion.
The tranche may be represented by one of several groups of securities interconnected and issued simultaneously. Different types of these appropriations of the same issue have different indicators of profitability, risk and maturity. A tranche may be recognized as a part of the securities of the issue, which is placed within the volume of this circulation in a specific period during the circulation period of such securities. However, this period may not coincide with the date of initial placement.
Use in public administration of the economy
One can also come across from the position of state regulation the interpretation of the definition of “tranche”: that it is the share of a loan that can be provided on certain conditions after a certain period of time during the period of validity of the loan agreement. A rather striking example is the provision of a loan by the International Monetary Fund, which takes place in four tranches of 25% of the total amount. So, the use of the first part of the loan funds is carried out immediately upon completion of the signing of such an agreement. But each subsequent tranche comes under the condition that all the conditions for providing the previous one are met. The practice of international lending provides for the implementation of the tranche granting mechanism, which implies the use by the lender of control tools using specialized target guidelines for applying the loan to the borrower.
Tranche - what is it financially
The concept itself was borrowed from French in the twentieth century. The range of definitions of the meaning of this term is in the financial plane. In a general sense, a tranche is part of some cash flow. Considering this concept in the narrow sense, it is necessary to distinguish three main its meanings:
- The part of the loan that the tranche agreement provides for as part of a single credit agreement (line of credit). The specified share should be in the form of part of the payment amount when repaying debt obligations or when obtaining a loan.
- Part of a package of certain financial assets, including the basic instruments of the capital market in the form of stocks and bonds, and derivative securities (derivatives) from them. Both types of instruments presented are for sale.
- One of a group of securities interconnected. The main condition is their simultaneous issuing. However, they are characterized by differences in indicators such as risk, return and maturity.
