It stands for leveraged super senior tranche; a super-senior tranche in which only a part of the tranche notional is paid by the holder. In other words, it is a piece of some credit default structure/ instrument (such as credit default swaps, super senior notes, etc.) that has its respective risk and seniority and allows investors (holders/ buyers) to pay only a fraction of the senior tranche’s total value and enhance their returns. This type of tranches differs from standard tranches in that the counterparty only provides a fraction of the nominal tranche notional, based on some leveraging factor, rather than post collateral for the full tranche notional.

Leveraged super senior tranches were introduced in the structured credit market to make the tranche spread more appealing to investors. It typically incorporates a set of triggers that relate to both the cumulative credit enhancement unattained by the super senior tranche (SS tranche) and the market spread for the underlying SS tranche. The trigger mechanism works as follows: when triggers are hit, the leveraged super senior exposure ceases to exist and the remaining proceeds, if any, are paid back to the investor. The typical holder of a super-senior tranche is only keen to see the collateral loss rate below the super-senior attachment point. However, a leveraged super-senior investor is also concerned about the mark-to-market (MTM value) of the underlying super-senior tranche. This is because when the mark-to-market triggers are hit the proceeds will be most probably below par.