Add to ORKGThe structure of securitization deals, referred to as tranching , is standard. In those transactions, claims on cash flows generated by the collateral are split into several classes of notes, at least 3 and possibly more than 5. Each class is called a tranche and has absolute priority in the cash flows over the more junior ones. Typically, investors with increasing sophistication acquire tranches with decreasing seniority. This paper offers a model where such a slicing of claims into a stack of several debt like contracts arises endogenously as a value maximizing arrangement. It also predicts the relationship between the seniority of tranches and the sophistication of their acquirers. It considers the situation of an issuer of asset-backed ...