medium · Corporate Credit Analysis
A $300 million TLA is priced at L + 250 bps, while a $700 million TLB for the same issuer is priced at L + 375 bps.
What is the most likely reason for this 125 bps pricing differential?
- The TLA is secured by better collateral than the TLB.
- The TLA carries a higher probability of default due to the maintenance covenants.
- The TLB lenders demand a premium for the longer tenor, minimal amortization, and lack of maintenance covenants.
- The TLB is structurally subordinated to the TLA in the legal waterfall.
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