Junior vs senior tranche — same principal
Both tranches sit on the same underlying loan pool, so they share the pool's default rate and risk-free comparison entered above — only the stated APY, loss severity and management fee differ, because that's what tranche position actually changes: who gets paid first, and who absorbs losses first.
| Tranche | Net APY | Net annual income | Excess return vs T-bill | Break-even default-loss | Cushion |
|---|
How it works
Every private credit pool has two separate risk knobs, and conflating them is where most yield estimates go wrong. The default rate is how often a loan in the pool actually stops paying — Maple's delegate-underwritten pools, Centrifuge's originator-sourced receivable and credit pools, and Figure's HELOC-heavy loan book all report this differently, but industry-wide private credit default tracking has moved in a wide band, from around 2-3% in calmer stretches to elevated single digits during stress. The loss severity is a separate question: of the amount that defaults, how much is actually gone after recovery? A senior secured position with strong covenants might recover 70-80 cents on the dollar; a subordinated position in a sector with little tangible collateral can recover far less. Multiplying default rate by severity gives the expected annual loss — the number that should come out of the headline APY before you call it your real return.
Tranching is how a single pool produces two very different risk profiles from the same loans. The junior / first-loss tranche absorbs losses before anyone else — if a borrower defaults, junior capital is written down first, which is exactly why platforms like Maple structure a delegate's own first-loss stake as the buffer between lenders and the rest of the pool. The senior tranche only takes a loss once the junior buffer is exhausted, so its effective loss severity on the same pool of loans is much lower — not because the loans are safer, but because someone else is standing in front of it. That's the entire reason junior pays more: it isn't a better investment, it's a riskier position in the same capital stack.
Reading the comparison
At $100,000 principal, a 3% historical default rate and a 4.3% T-bill comparison rate, the junior/first-loss tranche (11% stated APY, 60% loss severity, 1% fee) works out to an expected annual loss of 1.8 percentage points, landing at a net APY of 8.2% — $8,200/yr, or $3,900/yr (3.9pp) more than just holding T-bills. The senior tranche (7.5% stated APY, 15% loss severity, 0.75% fee) has a much smaller expected loss of 0.45pp, landing at a net APY of 6.3% — $6,300/yr, or $2,000/yr (2.0pp) of excess return over T-bills. At this default rate junior clearly wins on both net yield and cushion (3.9pp vs 2.0pp), which is the scenario the headline numbers are usually marketed against.
That comparison flips faster than the headline gap suggests once defaults rise, because junior's 60% severity means its expected loss grows four times faster than senior's 15% severity for every extra point of default rate. Run the same two tranches at a 6% default rate — roughly the elevated reading some 2026 private-credit default trackers flagged during stress periods — and junior's net APY falls to 6.4% while senior only slips to 5.85%: still a junior lead, but the gap has compressed from 1.9pp down to about 0.55pp. Push the default rate to around 7.2% and the two cross entirely, with senior's net yield overtaking junior's. The lesson isn't that junior is a bad trade — it's that junior's extra yield is compensation for exactly this sensitivity, and the calculator's cushion figure is what tells you how much room there is before that compensation runs out.