A tranche (specifically, a Z-tranche) that may receive principal repayments before other tranches with specific precedence order, and even if such tranches are still not retired, if market developments give rise to a “triggering” event (e.g., a drop in Treasury yields to a specific level or a prepayment pattern that deviates from set assumptions by a certain proportion.)
Toggle tranches may be of two types: sticky and non-sticky. A sticky toggle tranche maintains its changed repayment priority until full retirement. A non-sticky toggle tranche maintains its priority only for a temporary interval defined by the span of time during which the triggering event is still ongoing.
An example of a toggle tranche is a Z-tranche in a real estate mortgage investment conduit (REMIC) that can receive principal repayments before other tranches with a priority status are retired.
A toggle tranche is also known as a jump Z-tranche.
