A class or category of bonds contained within a larger bond offering, usually
posing varying degrees of risk to an investor. For example, a bond could be
issued with two separate tranches, each containing its own unique risk
characteristics. Tranche "A" might be structured so that none of the
bond principal is at risk, thus earning an investment grade rating from one or
more of the rating agencies. Tranche "B" may be designed to carry
additional risk (e.g., the principal is fully or partially at risk) and would
therefore not qualify for an investment grade rating. Separate tranches are
created to conform to the needs of individual investors. A catastrophe bond
with only one tranche (and therefore one risk profile) will attract only those
investors for which that risk profile is attractive. However, by structuring
multiple tranches, an issuer can significantly broaden a bond's appeal to
investors.