TLA vs. TLB Maturity and Leverage

1) TLA vs. TLB tenor (5yr / 7yr) and amortization (~5% vs. 1%/annum) comes down to investor: bank vs. institutional banks are comfortable w/ 5yr. institutional is more flexible, and focused on return on the loan (say L+400), therefore want less amort (TLA 5% vs. TLB 1%/annum), and are more flexible on tenor - 7yr. a) **ICLG 2020: Loan Syndications and Trading: An Overview of the Syndicated Loan Market (Loan Syndications and Trading Association) ** heres a tidbit from that helps explain more

Although banks continued to dominate both the primary market (where loans are originated) and the secondary market (where loans are traded), the influx of the new lender groups in the mid-1990s saw an inevitable change in market dynamics within the syndicated loan market. In response to the demands of this new investor class, the banks, which arranged syndicated loans, began modifying traditional deal structures, and, in particular, the features of the institutional tranche or term loan B, that portion of the deal which would typically be acquired by the institutional or non-bank lenders. The size of these tranches was increased to meet (or create) demand, their maturity dates were extended to suit the lenders’ investment goals, and their amortisation schedules tailored to provide for only small or nominal instalments to be made until the final year when a large bullet payment was scheduled to be made by the borrower. In return, term loan B lenders were paid a higher rate of interest. All these structural changes contributed to a more aggressive risk-return profile, which was necessary in order to still attract more liquidity to the asset class.

2) leverage 9x deal? Loan vs. HY Bond? depends. 1st - RC/TLA - bank investors typically dont go above 3x senior / 4x total (lev lending guidance) TLB will typically go to 4.0x-4.5x, even for a software deal, 5.0x+ (5.0x/7.0x deals typical for software) Senior Unsecured Notes -- not necessarily - depends on deal size. also 3.0x / 5.0x is less common, you see more like 4.0x / 5.0x, 4.5x/6.0x, may be 2L TLB not Notes Notes are for larger mega deals. 2L TLB tho has a ceiling in terms of size, like you wont see a 2L above $500, but theres some..

so say its 4.0x thru the 1L TLB maybe you get another 1.5x through the 2L TLB, so 4.0x / 5.5x. depends on industry, comps, and cash flows

heres a copy paste of TLA vs. TLB

TLA

“Pro rata” tranche that is packaged with a revolver and cannot be sold separately • Typically provided by banks, who are looking for other revenue opportunities • Typically no private equity sponsor for broadly-syndicated deals, but sponsors do sometimes use this product in the lower middle market • Floating interest rate (virtually always at a lower spread than Term B Loans) • LIBOR floor: Varies (typically 0% floor if provided by banks) • Upfront Fees to lenders: 25-50 bps • Tenor: 5–6 years, shorter tenor than Term B Loans • Amortization: Yes, typically 5% - 10% per year • Secured: Yes, all-asset blanket lien • Financial Maintenance Covenants: Yes, typically both leverage and debt service Easier to amend due to relationships with bank lenders so don’t need baked-in flexibility for company’s strategic initiatives, growth and solutions in times of distress More limited EBITDA adjustments (e.g., rarely see uncapped pro forma adjustments for synergies, cost reductions and aspirational future performance based on prior “run rate”) Terms: more varied, less “market” driven Limited debt buybacks Prohibitions on transfers to Disqualified Lender provisions becoming more common, but not universal as for Term B Loans Soft Call Protection: Rarely MFN Protection: Rarely

TLB

Typically arranged and sold to institutional investors (CLOs, prime rate funds, private credit/debt funds, hedge funds and asset managers) or direct lenders Floating interest rate (typically higher than Term A Loans) Upfront fees to investors: typically 50 – 100 bps Tenor: 6 – 7 years Amortization: Nominal (1% per year), bullet maturity Lenders typically have the ability to decline prepayments Secured: Yes, but carve-outs from blanket lien (no control agreements, often no mortgages, other carve-outs) Covenants: Single maintenance covenant or “Covenant Lite” (incurrence covenants only) Call Protection: Virtually always MFN Protection: Typically 50 bps, often with a 12 or 18 month sunset, but 75 bps with 6-month sunset is clearing