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First-out / last-out (FOLO)

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Quick Answer

First-out / last-out is the internal split of a unitranche facility into a lower-return priority tranche and a higher-return subordinated one.1,2

What it is

The first-out lender is paid ahead in the waterfall and accepts a lower rate; the last-out lender is paid behind and prices for it. The split lives in the Agreement Among Lenders and the borrower experiences only the blended rate. The Loan Market Association's recommended unitranche intercreditor form standardized much of how these terms are drawn.1,2

Operational context

What good looks like

Why It Matters

FOLO is where a borrower's negotiating leverage actually sits in a unitranche: the blended rate is a function of the split, so understanding the split is understanding the price.1

Term Family

Related concepts

Unitranche facility

Frequently Asked Questions

What is First-out / last-out (FOLO) in venture capital?

The first-out lender is paid ahead in the waterfall and accepts a lower rate; the last-out lender is paid behind and prices for it. The split lives in the Agreement Among Lenders and the borrower experiences only the blended rate.

Why is First-out / last-out (FOLO) important for startups?

Understanding First-out / last-out (FOLO) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.

Sources & References

  1. 1.T3-05 — Mayer BrownAgreements Among Lenders and Unitranche Facilities — a Fresh Look at a Trending Product (Nov 2023)Mayer Brown(First-out / last-out is the internal split of a unitranche facility into a lower-return priority tranche and a higher-return subordinated one.)secondary · T3 · debt-capital-structure · concept
  2. 2.T2-07 — Loan Market AssociationLMA unitranche intercreditor agreement (recommended form)Loan Market Association(First-out / last-out is the internal split of a unitranche facility into a lower-return priority tranche and a higher-return subordinated one.)primary · T2 · debt-capital-structure · concept
  3. 3.T3-08 — Baker DonelsonUnitranche Debt Structures: Practical Insights for Borrowers and LendersBaker Donelson(First-out / last-out is the internal split of a unitranche facility into a lower-return priority tranche and a higher-return subordinated one.)secondary · T3 · debt-capital-structure · concept

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