Companion Tranche

Tranche means slice in French. A companion tranche is a form of Collateralized Mortgage Obligation (CMO) bond. It's the bond that protects investors from prepayment risk (borrowers pay off mortgages earlier than expected...good for the borrower, bad for the tranche).

It's paired with a planned amortization class bond or tranche. The companion tranche has a higher yield than the planned amortization class tranche...so the companion tranche is the risker slice of the tandem pairing of a PAC and companion tranche.