Term Loan A vs Term Loan B

A company borrowing money in the leveraged loan market often issues more than one tranche of term debt at once, and the two most common are labeled Term Loan A (TLA) and Term Loan B (TLB). They fund the same borrower but are built for entirely different buyers.

Why the split exists

Banks that hold TLA on their own balance sheets want a loan that steadily pays itself down and matures relatively soon, both to manage regulatory capital and because they're relying on real repayment, not a refinancing, to get their money back. Institutional investors buying TLB, largely collateralized loan obligations (CLOs) and loan mutual funds, are comfortable holding a longer-dated, floating-rate instrument that pays a spread over a reference rate for years with almost no scheduled paydown, since they plan to hold it to maturity or trade it in the secondary market rather than expect the company to amortize it away.

Worked example

A company raises $800 million of term debt: $200 million of TLA maturing in 5 years with 10% annual amortization (roughly $20 million a year), priced at SOFR + 250 basis points, and $600 million of TLB maturing in 7 years with 1% annual amortization ($6 million a year), priced at SOFR + 375 basis points. The bank piece is cheaper and pays down faster; the institutional piece is larger, longer, pricier, and mostly a bullet repayment, reflecting the different risk tolerances of the two buyer bases funding the same borrower.