A tranche that 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 (hence it is also known as a first-loss piece).

Each tranche in a securitized structure carries its own risks, rewards and maturities that allow investors to choose the tranche that better reflects, and corresponds to, their investment objectives. The residual tranche has the lowest priority in relation to any claims for repayment against the underlying collateral. As such, it is considered a junior tranche, where it is set to first absorb losses in the case of default.

A residual tranche is also referred to as an equity tranche.