Term Loan A (TLA) and Term Loan B (TLB) are the two main tranches of senior debt in a structured acquisition financing. Though subscribed by different lenders and amortising on distinct profiles, they together form the priority layer of the LBO financing waterfall.

Term Loan A amortises quarterly over 5 to 6 years: principal is repaid progressively at regular intervals, progressively reducing lender exposure. It is typically subscribed by commercial banks that prefer a declining risk profile and regular cash flows. Its rate is generally SARON + 2.0–2.5% for Swiss transactions.

Term Loan B is repaid in full at maturity (bullet) — typically 6 to 7 years — with no significant interim amortisation. It is sold to institutional investors (debt funds, CLOs) less constrained by regulatory banking ratios, accepting a longer risk profile in exchange for slightly higher remuneration (SARON + 2.5–3.5%). The TLB is the tranche that maximises leverage in an LBO structure as it does not consume operating cash flow in capital repayment during the growth phase.

The TLA/TLB coexistence is standard above CHF 20 million of senior debt. Below that, a simple single Term Loan structure suffices. The typical split is 50–60% TLA (operational cash flow) and 40–50% TLB (leverage optimisation), with a revolving credit facility of CHF 2–5 million for working capital needs.

Example: a CHF 25.0 million EV LBO with CHF 12.5 million senior debt is structured as TLA of CHF 6.0 million (SARON + 2.2%, amortising over 5.5 years) and TLB of CHF 6.5 million (SARON + 2.8%, bullet at 7 years). Annual TLA service: CHF 1.09M + interest CHF 0.23M = CHF 1.32M. The TLB only consumes annual interest of CHF 0.25M until maturity.

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