US leveraged credit agreements commonly contain a revolving credit facility, a senior secured first-lien amortizing Term Loan A (TLa), usually held by participant banks, and a second-lien Term Loan B (TLb) with largely bullet repayment, typically bought by institutional investors. The “a” in TLa indicates that it is amortizing; the “b” in TLb shows that it is a bullet loan and follow “a” in terms of seniority.
Tranching [of the Dell LBO loan] now includes a $1.5-1.55 billion, five-year term loan C, a $4.625-4.675 billion, 6.5-year term loan B, and a 650-700 million euro (roughly $877-945 million), euro-denominated term loan B. The term loans are expected to be covenant-lite.
LMA template leveraged agreements foresee three senior secured “alphabet tranches” – “Facility A”, “Facility B” and “Facility C”, together with a revolving facility. The maturity and margin of each term loan facility increases, while sharing the same security package.
LMA leveraged documents anticipate repayment in installments for the A tranche, while the B and C tranches have bullet repayment terms. The margin on the C tranche is the highest followed by the B and then the A tranches. There is typically also a margin ratchet on the A tranche and the revolving facility linked to one or more of debt, interest and cash-flow coverage ratios.
The revolving credit facility in leveraged finance share the security with the senior term debt. Revolvers are commonly provided in corporate acquisition financing to meet the general working capital needs of the operational companies of the acquisition group over an extended period of time. They also commonly incorporate ancillary facilities.