A tranche that is the first, in a securitized structure, to absorb the losses and is exposed to the highest risk (while also would receive the highest yield). In other words, it ranks lower in repayment priority than other tranches in the event of default.

The most junior tranche is known as a first loss position/ first loss piece (FLP) carries the most of expected loss, whereas all the more senior tranches are basically exposed to loss volatility (unexpected loss) as per each tranche’s respective risk profile. This tranche comes with the lowest priority amongst the entire set of tranches constituting a securitized structure (CMBS structure, CMO structure, CDO structure, etc.) Losses that may arise from defaults on underlying debt/ loans will be charged against the principal balance of such a tranche that stands poised to firstly absorb losses.