hard · Corporate Credit Analysis

Holding EBITDA, FCF-before-debt-service, and refinancing markets constant, which consideration most directly undercuts the simplistic 'amortizing is always safer' conclusion?

1. Mandatory amortization is a fixed claim on cash that is senior to discretionary uses, so in a downside scenario where FCF falls, Issuer B faces a near-term liquidity/default risk that the bullet structure defers, making B's default probability potentially higher despite faster nominal deleveraging
2. Because Issuer B repays principal, its weighted-average cost of debt falls each year, so its interest coverage strictly improves relative to A, confirming that the amortizing structure dominates on every credit metric
3. The bullet structure forces Issuer A to carry a 100% balloon refinancing risk in Year 7 that is always more severe than any interim amortization burden, so A is unambiguously the weaker credit
4. Straight-line amortization reduces the loan's duration and therefore its mark-to-market sensitivity, which lowers the issuer's probability of default by reducing the volatility of its enterprise value

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