medium · Corporate Credit Analysis

In a stressed environment, why might a borrower find a TLA more difficult to manage than a TLB?

1. The TLB's interest rate is usually fixed, providing a hedge against rising rates.
2. Institutional lenders are more likely to sue the company than relationship banks.
3. The TLA has 'soft call' protection that makes it impossible to refinance.
4. The high mandatory amortization and maintenance covenants create constant liquidity and default pressure.

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