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Comments (11)

Dec 31, 2010 - 12:10am

It's nothing like Mezz. The only difference for Reg 144A bonds is that there is no public reporting. Everything else is exactly like a publicly registered bond. Also, the common notation is "private for life".

For your second question, Second Lien is referring to the type of security the loan has. Term Loan Bs can be second lien, first lien, unsecured, etc.

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Dec 31, 2010 - 8:52am
For your second question, Second Lien is referring to the type of security the loan has. Term Loan Bs can be second lien, first lien, unsecured, etc.

right. but TLB cannot be first lien if you already have a TLA, which by definition is a first lien loan (to have a 2nd lien loan, you need to have a 1st lien loan). Can you have a TLB without TLA? if you can have it, then I assume a TLB could be 1st lien. And whats the deal about unsecured? Term Loans are senior secured (with either 1st lien or 2nd lien on them) - I've never heard of a (senior) term loan that is unsecured. As far as I know, the only debt that is unsecured is subordinated debt which could be either mezz or HY.

Dec 31, 2010 - 12:32am

Term Loan B can either be held by the underwriting bank or sold down to institutions. Biggest difference between TLA and TLB is that term loan B amorts slower. Slower amort equals larger average debt balance which translates into more interest income for institutional investors.

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Dec 31, 2010 - 2:16am

I would also add that there are prepayment penalties, because as you mentioned the institutional investors want the yield versus in a TLA structure the banks would actually prefer that the loan is repaid early.

Dec 31, 2010 - 11:02am

Not trying to be rude, but based on your comments thus far the fact that you have never heard of something means very little. You are extremely confused. HY notes and TLb can basically be any combination of security and senority that you can think of. 1st lien, 2nd lien, unsecured, senior, sub, etc.

FYI, TLAs are not always secured and of course you can have a TLB without a TLA

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Best Response
Dec 31, 2010 - 12:40pm

Still an undergrad so take the below with a pinch of salt.

As far as I know, most leveraged transactions pre-08 were senior secured and included an amortising term loan A (TLA), and one or two bullet repayment term loans B and C (TLB and TLC). All tranches usually ranked pari passu i.e. TLA usually did not have a higher priority than TLB. The different risk-rewards come about as a result of the different tenors and payment schedules. TLA usually matures first, followed by TLB and then TLC. Also, as TLA is armotising, it has a lower duration than TLB and TLC. Banks would normally fund TLA, while TLBs and TLCs would be funded by credit funds, insurance companies, CLOs etc. TLA would typically be priced at libor+400, TLB 50-100bps wider, and TLCs even wider. Where revolvers existed as well, these usually ranked pari passu with the term loans.

As firebi mentioned though, loans can be structured in different ways and there's no reason why a syndicated loan facility couldn't be structured with TLB being 2nd lien behind TLA, or the whole facility being unsecured (though I've never heard of this actually happening, but it's not impossible from a legal standpoint).

Dec 31, 2010 - 12:53pm

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