Term loan A
LBOThe amortising senior tranche held by relationship banks, repaying on a fixed schedule across its life rather than at maturity.
Also written: TLA, amortising term loan
A term loan A is the bank tranche in a leveraged structure. It is senior secured, floating rate, shorter dated than the institutional tranche, and it amortises meaningfully, repaying a substantial share of principal over its life instead of leaving the balance to maturity.
That amortisation is the whole difference, and it cuts both ways for a sponsor. Scheduled repayment is cash leaving the business every year whether or not there is something better to do with it, so a plan with heavy capex or a bolt on pipeline is constrained by it. In exchange the A tranche prices below the institutional tranche, because the lender is repaid sooner and holds a shorter exposure.
European structures have historically carried more of it than American ones. The reason is who lends: a European relationship bank underwrites against the whole client relationship, including cash management, hedging and future advisory work, so it will price a loan more finely than an institutional investor who owns only the paper.
A sponsor frequently uses both tranches in one deal, sizing the A tranche to the cash the business can comfortably give back and the B tranche to the leverage it wants to carry. Where the excess cash flow sweep applies pro rata across both, or exclusively to the B tranche, is negotiated, and it materially changes how quickly the cheap tranche disappears.
Worked example
A 250 package split as 75 of term loan A amortising over six years and 175 of term loan B amortising at 1% a year.
The A tranche returns 12.5 a year to lenders, so 62.5 over a five year hold. The B tranche returns 1.75 a year, so 8.75.
Same seniority, same security, and roughly 54 more of cash handed back to lenders across the hold under the A tranche. That is cash unavailable for capex or acquisitions, which is why the cheaper tranche is not automatically the better one.