Tranches separate a liability into separate segments that are designed to offer various levels of risk and return.
- Another name for Tranches is Portions
- Each tranche has varying risks, expected returns, maturities and credit ratings
- Tranches allow investors to pick their level of return and risk
- Tranches are common in secularizations, collateralized loan oblications
- There are common names for tranches with specific credit ratings
- Equity
- Senior Tranche (rated Tripple A and Double A)
- Mezzanine Tranche (rated Single A and Tripple B)
- Junk Tranche (rated Double B or below)