Which of the following statements is true regarding Term Loan A compared to Term Loan B?

Term Loan A is often structured with a lower interest rate compared to Term Loan B because it typically involves less risk for lenders. This is primarily due to the higher priority of Term Loan A in the capital structure, as it is often secured and has a shorter maturity. The reduced risk leads to a more favorable borrowing cost, resulting in lower interest rates.

In contrast, Term Loan B tends to carry a higher interest rate to compensate lenders for the increased risk associated with its covenants and characteristics, such as being unsecured or subordinated, and generally having a longer maturity with less frequent amortization. These factors contribute to the higher yield that lenders require for Term Loan B.

The other options contrast characteristics of the two loan types that are not accurate: Term Loan B is not amortized in the same way as Term Loan A; rather, it usually features a bullet payment at maturity or an extended amortization schedule. Additionally, the notion that Term Loan B has shorter repayment terms contradicts the traditional structure, where Term Loan A typically has shorter terms than Term Loan B. Thus, the correct choice highlights the comparative risk and cost dynamics between these two types of loans, affirming that Term Loan A is generally viewed as a less risky option with corresponding lower interest rates