One of an array of related securities (security issues), each of which is characterized by different return patterns, cash flows, strike price, and expiration date. However, each tranche (or slice) is offered as part of the same structure/ transaction. For the purpose of documentation, a tranche is a different “class” of securities, each identified by its own letter, and corresponds to its own credit rating. Tranches are created by means of structured finance, for multiple ends and purposes, including better segregation of risk and improved cash flows, all in a manner that appeals to various groups of investors.

Tranching involves pooling together a set of cash flow-generating assets (like loans, bonds, mortgages, etc.) and then forming out of the pool discrete tranches. Examples of transactions that are structured using tranches are equity-linked notes, range warrants, mortgage-backed securities (MBSs), etc.