Structure
Senior stretch
A senior stretch is a single senior facility pushed above conventional bank leverage without adding a junior layer. It buys borrowing capacity that a bank structure would not reach, and it prices and covenants accordingly.
Also called stretched senior · stretch facility · stretch senior debt
On the same £2m of EBITDA, each step up the leverage ladder is roughly a million and a half of facility.
| Structure | Facility |
|---|---|
| Bank senior (3.0x) | £6m |
| Senior stretch (3.75x) | £7.5m |
| Unitranche (4.25x) | £8.5m |
Derived arithmetic on £2m EBITDA using the published bank senior (2.5-3.5x) and unitranche (4-4.5x) bands. The stretch position between them is market convention.
What the structure is
A senior stretch is a single senior facility taken above the leverage a lender would conventionally underwrite on senior terms, without introducing a separate junior tranche to carry the extra risk.
The alternative constructions are familiar. A layered structure adds mezzanine or second lien behind the senior loan, with its own lender, pricing and intercreditor. A unitranche replaces the whole stack with one blended fund facility. A stretch does neither: it stays one senior facility and simply reaches further.
The appeal for a borrower is that the documentation and the lender relationship stay simple. One agreement, one counterparty, no intercreditor negotiation between lenders who would otherwise not need to speak to each other.
Where it sits
Between the two structures the market already understands. Bank senior leverage is commonly 2.5 to 3.5 times EBITDA. Unitranche runs nearer 4 to 4.5 times, occasionally five for a strong credit. A stretch occupies the space in between.
Because the guides publish no figures specific to stretch facilities, the honest position is that the stretch level is a negotiation rather than a convention with a published band. What can be said is the shape: it reaches above where a conventional senior lender would stop, and below where a unitranche fund is comfortable.
That positioning also describes the pricing. A stretch prices above bank senior at low single digits over SONIA and below unitranche at SONIA plus 550 to 800 basis points, without a published band of its own.
The extra leverage is not free. Four things move against the borrower as the facility stretches.
| Term | Movement |
|---|---|
| Security package | Unchanged |
| Reporting obligations | 20–42 on the scale |
| Amortisation and sweep | 40–65 on the scale |
| Covenant headroom | 58–80 on the scale |
| Margin | Moves furthest |
Relative movement from a conventional bank senior starting point. Illustrative market convention, not measured data.
What the extra leverage is worth
On a business with £2m of EBITDA, the arithmetic is straightforward and the amounts are material.
Conventional bank senior at 3.0 times supports about £6m. A stretch at around 3.75 times supports about £7.5m. A unitranche at 4.25 times supports about £8.5m. Each step is worth roughly £1.5m of additional facility on unchanged earnings.
That is the whole case for a stretch, and it is a good one where the extra £1.5m is the difference between completing a transaction and not. It is a poor case where the additional capacity simply sits available: paying a wider margin across the entire facility to access headroom you will not draw is an expensive way to feel comfortable.
What you concede
The additional leverage is the riskiest slice of the loan, and the lender prices and protects it accordingly. Four things move.
The margin moves furthest, since it is compensating for the incremental risk across the whole facility rather than just the stretched portion. Covenant headroom is squeezed, because the customary 25 to 30% cushion on a higher multiple leaves less absolute room before a breach. The repayment profile is frequently steeper, or carries a heavier cash sweep, so the lender deleverages out of the stretched position quickly. Reporting obligations tighten.
What usually does not change is the security package, which was already all-assets, and the fundamental shape of the facility.
The headroom problem
This is the consequence most worth modelling before agreeing a stretch, because it is not obvious from the multiple.
Headroom is customarily 25 to 30% against the base case, but that percentage is applied to a higher number. On a business at 3.0 times with a 3.5 times covenant, EBITDA can fall roughly 14% before a breach. On the same business stretched to 3.75 times with a covenant at, say, 4.25 times, the percentage cushion looks similar while the business is carrying more debt against the same earnings, so any given fall in EBITDA moves the ratio further.
Combined with a steeper amortisation profile and a step-down schedule, a stretched facility can be tight in year three even where it looked comfortable at close. The test is to model the covenant at the tightest point of the schedule against a real downside, not at the opening level against the plan.
Stretch sits in the middle of the market and so do its providers. Few clearing banks reach it.
| Lender type | How often |
|---|---|
| Clearing bank | Rarely |
| Challenger or specialist bank | Sometimes |
| Debt fund | Regularly |
Typical availability by lender type at £3-15m. Individual appetite varies and is not a ranking.
Who provides it
Availability sits in the middle of the market, which is unsurprising given where the product sits.
A clearing bank rarely stretches far above its conventional leverage, because the appetite is a matter of internal policy rather than pricing. A challenger or specialist bank does so more often. Debt funds provide stretch structures regularly, and some position a stretch explicitly as a product between their unitranche offering and bank pricing.
For a borrower this shapes the process. A stretch is unlikely to emerge from approaching a single incumbent bank; it emerges from a competitive process that includes lenders whose appetite reaches above the conventional band. Where the required leverage sits just above what the incumbent will do, the useful step is to widen the field rather than to negotiate harder with a lender whose policy will not move.
Stretch against unitranche
The comparison worth making, since they solve the same problem at different points.
A stretch keeps a senior structure, usually amortises, and typically prices below unitranche. A unitranche reaches higher leverage, usually runs bullet so no principal is repaid until maturity, and carries a lighter covenant package, often a single test and sometimes a springing one.
So the choice is not only about how much you can borrow. It is about whether you want the cash relief of a bullet through the integration years, whether the covenant flexibility is worth paying for, and whether the additional leverage above stretch level is needed at all.
Where the answer to all three is no, and the required facility fits within stretch leverage, a stretch is the cheaper structure. Where the transaction needs 4.5 times, or the business needs its cash for an integration, unitranche is the honest answer despite the wider pricing.
When it is the right middle answer
A stretch earns its place in a fairly specific situation: a business whose funding requirement sits a little above conventional bank leverage, with steady enough cash generation to service an amortising profile, and no particular need for covenant flexibility.
It is a poor fit where the earnings are volatile, because the squeezed headroom and the steeper amortisation compound. It is also a poor fit where the business is mid-integration and needs its cash, since the amortisation takes exactly the money the integration requires.
The practical way to test it is to run all three structures at the actual funding requirement, in total pounds over the expected hold, and check each against a downside case rather than the plan. Stretch frequently wins that comparison on cost and loses it on resilience, and which matters more is a judgement about the business rather than about the market.
Common questions
What is a senior stretch facility?
A single senior facility taken above the leverage a lender would conventionally underwrite, without adding a separate junior tranche. It keeps one agreement and one counterparty, avoiding the intercreditor negotiation a layered structure requires, and simply reaches further than standard senior debt.
How much more can I borrow with a stretch?
It sits between the two published bands: bank senior at 2.5 to 3.5 times EBITDA and unitranche at 4 to 4.5 times. On £2m of EBITDA, moving from 3.0 to around 3.75 times is roughly £1.5m of additional facility. The exact stretch level is a negotiation rather than a published convention.
What does a senior stretch cost?
Above bank senior, which prices at low single digits over SONIA, and below unitranche at SONIA plus 550 to 800 basis points. There is no published band for stretch pricing specifically, which is itself worth knowing: it means the number is negotiated rather than benchmarked.
What do I give up for the extra leverage?
The margin moves furthest, because it compensates for the incremental risk across the whole facility. Covenant headroom is squeezed, since the customary cushion on a higher multiple leaves less absolute room. The amortisation profile is often steeper or carries a heavier cash sweep, and reporting obligations tighten. The security package usually stays the same.
Why does a stretch feel tighter in year three?
Because the squeezed headroom compounds with a step-down schedule and a steeper amortisation profile. A facility that looked comfortable at close can be tight later on unchanged trading. The covenant reads differently at the tightest point of the schedule against a real downside than at the opening level against the plan.
Which lenders provide stretched senior facilities?
Rarely a clearing bank, since appetite above the conventional band is a policy matter rather than a pricing one. More often a challenger or specialist bank, and regularly a debt fund, some of which position a stretch explicitly between their unitranche product and bank pricing.
Is a stretch better than a unitranche?
Cheaper, and less resilient. A stretch keeps a senior structure, usually amortises and prices below unitranche. A unitranche reaches higher leverage, runs bullet so cash stays in the business, and carries a lighter covenant package. Stretch wins on cost and loses on flexibility, and which matters depends on whether the business needs its cash.
When is a stretch the wrong structure?
Where earnings are volatile, because squeezed headroom and steeper amortisation compound against you. And where the business is mid-integration and needs its cash, since the amortisation takes exactly the money the integration requires. In both cases the bullet profile of a unitranche is usually worth its wider pricing.
The full treatment sits in the guide: unitranche vs bank senior.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.