Module IV· Debt RatiosIntermediate
Question
What typical pricing components does a Term Loan B contain in the current market?
Answer
What
A Term Loan B (TLB) has several pricing components. The "all-in yield" is the total cost — the coupon alone does not show the true cost of capital.
Typical middle-market TLB, 2024
| Component | Value |
|---|---|
| Reference rate (SOFR 3M) | 3.5% |
| Spread / margin | +425 bps |
| OID (original issue discount) | 1–2% |
| Underwriting fee | 2–3% |
| All-in coupon (running) | ~7.75% |
| All-in YTM incl. fees | ~8.1–8.3% |
Deep diveShow more details
Example — TLB $200m
| Item | One-time | Annual |
|---|---|---|
| Underwriting fee 2.5% | $5m | – |
| OID 1% (issued at 99) | $2m | – |
| Effective cash received | $193m | – |
| Annual coupon ($200 × 7.75%) | – | $15.5m |
| Annual OID amortization (straight-line, 7 yr) | – | $0.29m |
| Effective YTM | – | ~8.1–8.3% |
Consequence
- The sponsor pays a nominal 7.75% coupon, effectively 8.1–8.3% YTM.
- Over time the coupon dominates and the fee amortization becomes marginal.
- On early repayment, a make-whole or soft-call premium applies (typically 101 for 6 months, then par).
Pitch tip
Question: "What is your true cost of capital?"
Answer: "All-in YTM, not just the coupon. SOFR 3.5% + 425 bps + fee amortization = about 8.2%. Standard in the middle market; depending on sector and sponsor track record it varies by ±50 bps"