Tranche - what is this and what is the significance for the state

In today's economic world, it is very common to find such a thing as a tranche. What is this, let's try to figure it out.

General definition of the term

So, the tranche is the issue of certain securities, as well as some share of a bond issue , issued in separate series. There is also another definition of the concept of "tranche" - that it is a loan or a loan transferred to the borrower in the form of a one-off portion.

Tranche can be represented by one of several groups of securities, interrelated and emitted simultaneously. Different types of data for allocations of one issue have different indicators of profitability, risk and maturity. Tranche can be recognized as some of the securities of the issue, which is placed within the volume of this circulation in a specific period during the period of circulation of such securities. In this case, this period may not coincide with the date of the primary placement.

Use in the public administration of the economy

One can also find from the position of state regulation the interpretation of the definition of "tranche": that this is the share of a loan that can be granted on certain conditions after a certain period of time during the period of the loan agreement. A fairly vivid example is the granting of a loan by the International Monetary Fund, which takes place in four tranches of 25% of the total amount. Thus, the use of the first part of the loan proceeds immediately after the completion of the signing of such an agreement. But each subsequent tranche comes under the condition that all the terms of the previous one are met. The practice of international lending involves the implementation of a mechanism for the provision of tranches, which involves the use of the lender's monitoring instruments using specialized targets for the application of credit by the borrower.

Tranche - what is it in the financial aspect

The concept itself was borrowed from the French language in the twentieth century. The range of definitions of the meaning of this term is in the financial plane. In a general sense, the tranche is part of some cash flow. Considering this concept in the narrow sense, it is necessary to distinguish three main values:

• Part of the loan, which provides for a tranche agreement under a single loan agreement (line of credit). The specified share should act in the form of a part of the payment sum at repayment of promissory notes or at reception of the credit.
• Part of a package of certain financial assets, which includes both basic instruments of the capital market in the form of shares and bonds, and derivatives derived from them (derivatives). Both types of instruments are intended for sale.
• One of the group of securities, interrelated. The main condition is their simultaneous issuance. However, they have differences in such indicators as risk, profitability and maturity.

Tranche is an accompanying element of the loan agreement

The definitions presented reflect the meaning of the meaning of the expression "credit tranche".

However, the concept of "tranche" is quite successfully used when concluding an overdraft agreement. Tranche in this case means cash provided at a time within the concluded overdraft agreement in the amount necessary to pay off the corresponding obligation of the borrower in the absence of the required amount of cash in his accounts. In this case, the tranche in this case is limited to a certain limit, established by the relevant agreement.