Senior tranche

For example, in an asset-backed security issue, the special purpose entity issues several tranches of securities that each represent an interest in the pool of underlying receivables, with varying maturities and credit risk levels. Each tranche includes securities with a maturity and level of credit risk that are different from the other tranches. Such a structure might include, for example, senior (rated AAA) securities (senior tranche), mezzanine (rated A) securities (mezzanine tranche), junior (rated BBB to B) securities (junior tranche) and residual (unrated) securities (equity tranche). The specific tranche structure can be adapted to investor requirements for different degrees of credit risk.