Term Loan A vs Term Loan B (TLA vs TLB)

Term Loan A (TLA) and Term Loan B (TLB) are the two main tranches of senior term debt in a structured acquisition financing. The choice of term loan A vs term loan B comes down to four features: amortisation profile, pricing, covenants and investor base. Together they form the priority layer of the LBO financing waterfall, sitting alongside the revolving credit facility within the senior debt package. The TLA, amortising over the life of the loan, is typically held by commercial banks, while the TLB, repayable in fine with a longer tenor and a higher margin, is placed with institutional investors and debt funds. The mix between the two tranches shapes the borrower's cash flow profile and its headroom under financial covenants, which makes it a central parameter of any LBO structuring.

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The Term Loan A vs B comparison in brief:

• Amortisation: the TLA amortises quarterly over 5 to 6 years, progressively reducing lender exposure; the term loan B is bullet, repaid in full at maturity after 6 to 7 years, with at most a nominal annual amortisation.
• Pricing: the TLB pays a premium over the TLA, typically SARON + 2.5–3.5% versus SARON + 2.0–2.5% on Swiss transactions, compensating investors for the longer average life.
• Covenants: the TLA carries full maintenance covenants tested quarterly, while the TLB is frequently cov-lite, relying mainly on incurrence-based tests.
• Investors: the TLA is subscribed by commercial banks seeking regular cash flows; the TLB is placed with institutional investors (debt funds, CLOs) less constrained by regulatory banking ratios.

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Because it does not consume operating cash flow through capital repayment during the holding period, the term loan B is the tranche that maximises leverage in an LBO structure. TLA/TLB coexistence is standard above roughly CHF 20 million of senior debt; below that, a single amortising term loan usually suffices. A typical split allocates 50–60% to the TLA and 40–50% to the TLB, alongside a revolving credit facility of CHF 2–5 million for working capital. The TLA vs TLB split is therefore an arbitrage between debt cost and cash flow flexibility.

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Example: a CHF 25.0 million enterprise value LBO with CHF 12.5 million of senior debt is structured as a TLA of CHF 6.0 million (SARON + 2.2%, amortising over 5.5 years) and a TLB of CHF 6.5 million (SARON + 2.8%, bullet at 7 years). First-year TLA debt service: CHF 1.09 million of principal plus CHF 0.23 million of interest, or CHF 1.32 million in total. The TLB only consumes around CHF 0.25 million of annual interest until maturity, preserving cash for growth investment.

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At Hectelion, we structure TLA and TLB tranches in our financial structuring mandates, calibrating the amortisation profile against the target's repayment capacity and market conditions.