The Term Loan B Market and Regional Bank Balance Sheets
Executive Summary
Most regional banks rebuilt net interest margin over the past two years from the liability side, and that source is largely spent. Industry NIM slipped to 3.31% in the first quarter of 2026 as the yield on earning assets fell faster than the cost of funds (FDIC, Q1 2026). At the same time, commercial real estate has grown as a share of the loan book while commercial-and-industrial lending has thinned, a mix examiners scrutinize and the rate cycle no longer rewards.
A Term Loan B (“TLB”) answers both. It is a senior secured, first-lien, floating-rate C&I loan to a U.S. operating company (a commercial loan, not a security) that trades in an active secondary market of roughly $1.5 trillion. The case rests on five points: a way to scale earning-asset growth on demand; a potential spread pickup over comparable new bilateral C&I; secondary-market liquidity a relationship loan cannot offer; diversification away from CRE; and floating-rate income with no duration, carried at amortized cost rather than marked to market daily.
The pages that follow define the instrument and its amortizing cousin, the Term Loan A; quantify the economics for a representative regional bank; set syndicated loans against private credit and the bank’s own bilateral book; and lay out the accounting and regulatory treatment that keeps the exposure in the loan portfolio at a 100% risk weight.
In This Paper- 01 The Balance-Sheet Problem
- 02 What Is a Term Loan B?
- 03 Five Benefits
- 04 The Economics
- 05 Syndicated Loans, Private Credit & Bilateral
- 06 Regulatory & Accounting
Caird Investment Partners is a Dallas-based, SEC-registered investment adviser that manages broadly syndicated loan portfolios for regional banks. The firm was built inside a regional-bank balance sheet before becoming independent. Its program design, credit infrastructure, and agent-bank relationships reflect how the asset class works from inside a bank.
Caird manages these portfolios through separately managed accounts on a fiduciary, management-fee-only basis. The bank keeps direct ownership of every position, full transparency, and final authority over every credit decision.
01 The Balance-Sheet Problem
The net interest margin recovery of the past two years was real, but at most regional banks it came almost entirely from the liability side, where deposit costs fell faster than asset yields. Industry NIM was 3.31% in the first quarter of 2026, down eight basis points on the quarter, and this time the decline ran the other way: the yield on earning assets fell 21 basis points while the cost of funds fell only 13 (FDIC, Q1 2026). With funding relief no longer outpacing asset repricing, the next leg of margin has to come from the asset side.
There is little runway left on the funding side. A bank already funding near the bottom of its deposit range cannot expect another quarter-point of relief from the same place. Asset yield is the variable that still moves, which puts the mix of earning assets, and the spread each one carries, at the center of the margin question.
The mix has also drifted. Commercial real estate has grown as a share of the loan book at most regional banks over the past several years, while C&I has thinned relative to capital. Examiners do not distinguish between a bank that is CRE-concentrated by design and one that arrived there by absorbing deposit growth without writing matching C&I. The concentration reads the same in the exam, and CRE delinquency has begun to tick higher (1.65% on nonfarm nonresidential CRE, Q1 2026). Rebuilding the C&I side addresses earnings and concentration together.
Exhibit 1 · C&I has thinned while CRE has built
Illustrative. Directional composite based on industry concentration trends; not a specific institution. Source: FDIC Quarterly Banking Profile, Q1 2026. Caird provides no assurance that these trends will continue.
A Term Loan B addresses both problems at once. It is a C&I asset, it is floating rate, and it can be available at yields that bilateral origination in most regional markets cannot match.
02 What Is a Term Loan B?
A Term Loan B is a senior secured, floating-rate commercial loan extended to a U.S. operating company, usually arranged alongside an acquisition, buyout, or recapitalization. The phrase broadly syndicated loan (“BSL”) describes how the loan is distributed, meaning arranged by a bank and sold to a broad group of institutional lenders, not how it is structured or what risk it carries.
TLBs are not structured products, derivatives, or securities. They are senior secured obligations of real operating companies, documented under the same legal frameworks as the commercial loans already on a bank’s books. The difference is distribution. Rather than being held start-to-finish by the originator, a TLB is sold into the institutional market and trades on a secondary basis.
Four structural features that matter
| First-lien, senior secured | The highest-priority claim on borrower assets in a restructuring. First-lien loans have historically recovered on the order of 65 to 70 cents on the dollar, well above unsecured debt (Moody’s, 2026). |
| Floating rate over SOFR | The coupon resets with the rate environment, so income rises and falls with SOFR rather than carrying fixed-rate duration. SOFR stood at 3.60% in mid-June 2026 (NY Fed). |
| Agent-administered | A major commercial or investment bank underwrites, documents, and administers the credit over its life, with reporting and covenant monitoring built into the structure. |
| Predominantly sponsor-backed | Private-equity ownership sits junior to every dollar of debt, giving sponsors strong incentive to support portfolio companies through stress. Financials are disclosed to institutional lenders under a non-disclosure agreement rather than filed publicly. |
A Term Loan A is the same family, dialed more conservative. It amortizes rather than paying a single bullet at maturity and usually prices tighter than a TLB. It is the pro-rata tranche banks already know from club and syndicated deals, and the natural, lower-beta complement to a TLB book when a bank wants a shorter maturity profile, given TLAs typically have maturities of five years whereas TLBs are traditionally seven years. The case here applies to both; the spread and return figures reference the TLB.
Because a TLB is a commercial loan, it sits in the C&I book and is treated like one, not like an investment security. That distinction drives the accounting and capital treatment below.
| Term Loan B | Agency RMBS | Municipal Bond | |
|---|---|---|---|
| Asset type | Commercial loan (C&I) | Investment security | Investment security |
| Rate structure | Floating (SOFR+) | Fixed / hybrid | Fixed |
| Duration risk | Low | High | Moderate to high |
| AOCI exposure | None | Yes (AFS) | Yes (AFS) |
| Accounting | CECL / HFI | AFS / HTM | AFS / HTM |
03 Five Benefits
Five reasons the asset earns a place on the C&I line.
1 A lever to flex up asset growth
When a bank has deposits to put to work, bilateral origination is slow: relationship pipelines build one credit at a time, and out-competing local lenders for that volume compresses the very spread the bank is chasing. A TLB allocation can be deployed quickly and in size through the primary and secondary markets, then dialed back just as readily, letting a bank grow earning assets on its own timetable rather than the pipeline’s.
2 A potential spread pickup over bilateral C&I
Competition has compressed spreads on relationship lending across most regional markets. Bank-appropriate TLBs have generally priced around SOFR + 225 to 350 basis points for first-lien, senior secured exposure to a national operating company, which can run 25 to 50 basis points wide of where a bank might write comparable new bilateral C&I.
Exhibit 2 · The potential spread pickup, all-in over SOFR
Illustrative. Spread ranges for bank-appropriate names; gold segment marks the potential pickup. Source: Morningstar LSTA / PitchBook LCD spread data, 2025 through 2026; bilateral range reflects market pricing. Caird provides no assurance or guarantee that these targeted returns will be achieved.
3 Secondary-market liquidity
Because TLBs trade, in a market of roughly $1.5 trillion marked daily, a bank can trim or exit a position in response to a credit concern, a capital need, or a change in strategy. A bilateral loan offers no such exit; the practical choice is to renew it or damage a relationship.
4 Diversification away from CRE
A TLB is C&I, so it rebuilds the side of the book that has thinned, with national, multi-sector issuers that diversify a book otherwise tied to one region, without out-competing local relationship lenders or adding to a concentration examiners already watch. And where an issuer is headquartered or operates in the bank’s footprint, the position can also count as an in-market loan.
5 Floating-rate income, no duration, no daily mark-to-market
Income resets with SOFR, so there is no fixed-rate duration risk, and the loans are carried at amortized cost rather than marked to market daily. Banks that held floating-rate loans through 2022 and 2023 saw income expand while available-for-sale securities books took unrealized losses that grew again in the first quarter of 2026 (FDIC, Q1 2026).
04 The Economics
The figures below trace a sleeve from gross coupon to net return on assets, expressed as a percentage of the sleeve itself rather than of a bank balance sheet. They are illustrative and class-level, built on round assumptions rather than a specific portfolio.
Exhibit 3 · From coupon to net return: illustrative TLB sleeve
Illustrative. Hypothetical; not a specific portfolio. Tax at 21%; expected loss reflects a bank-grade, first-lien selection (index-wide loan default ran ~1.25% by amount in early 2026, PitchBook LCD). ¹ 30-Day SOFR as of 5/11/2026 and hypothetical discount margin from observed deals as of 5/11/2026. ² Average funding cost per Q1 2026 bank call report data, BankRegData.com; actual funding costs will vary by bank. ³ The management fee is charged on the outstanding loan balance; the applicable fee will vary by mandate. Caird provides no assurance or guarantee that these targeted returns will be achieved.
The sleeve nets roughly 2.9% on assets after fee, loss, expense, and tax. Because a TLB is C&I at a 100% risk weight, funding it by rotating out of other 100%-risk-weight assets is broadly capital-neutral: risk-weighted assets are unchanged, and the higher net yield flows through to return on equity.
05 Syndicated Loans, Private Credit & Bilateral Lending
A bank deploying balance sheet into senior corporate credit has three broad routes: the broadly syndicated loan, a privately negotiated direct loan (“private credit”), and the bank’s own bilateral C&I loan. They finance similar borrowers and differ on three things a regulated lender cares about: price discovery, liquidity, and oversight.
| Broadly Syndicated Loan | Private Credit | Bilateral C&I | |
|---|---|---|---|
| Origination | Bank-arranged, syndicated to institutions | Privately negotiated, club or single lender | Originated and held by one bank |
| Trading | Active secondary market | Generally held to maturity | None |
| Pricing / valuation | Continuous, marked daily | Periodic, model / appraisal-based | Set locally; carried at par |
| Liquidity / exit | High; trim or sell in the market | Illiquid; gates possible | Renew or impair the relationship |
| Credit ratings | Public, agency-rated | Often unrated or privately rated | Internal risk rating |
| Oversight | Bank rules + market scrutiny | Nonbank, lighter disclosure | Bank rules; single name |
Private credit has grown to roughly $1.7 trillion to $2.0 trillion of assets under management, rivaling the BSL market in size (Moody’s, 2026; FSB, 2026). Its supporters point to a buy-and-hold structure that avoids forced selling. The honest counter is that infrequent, model-based valuation can delay the recognition of stress rather than remove it. The Financial Stability Board found private credit skews toward lower-rated, more highly levered borrowers than the BSL market, and notes the opacity “cannot be easily resolved” (FSB, 2026). Roughly two-thirds of rated private-credit borrowers sit at a B- rating or below (FSB, May 2026, Q3 2025 distribution).
Exhibit 4 · Where the credit sits: private-credit rating mix
Source: Financial Stability Board, Report on Vulnerabilities in Private Credit (May 2026), Q3 2025 distribution, drawing on Fitch, Bloomberg, and UBS data. BSL issuance skews higher-quality (BB/B).
Because syndicated loans are marked daily and trade, deterioration in a credit tends to become visible earlier, and a holder can adjust its exposure in response. This does not eliminate liquidity risk in syndicated loans. It does mean that, relative to private credit, signs of stress are more observable and a regulated holder has more room to act on them. The bilateral loan remains the bank’s deepest relationship tool, but it prices to local competition and offers no secondary exit; the syndicated loan complements it with broader diversification and the ability to reduce a position.
06 Regulatory & Accounting Considerations
Held in the loan book, a TLB is accounted for under CECL as a held-for-investment commercial loan, with an allowance for credit loss like any other C&I credit. It carries no AOCI exposure, the distinction that mattered in 2022 and 2023, when unrealized losses on available-for-sale securities pressured capital across the industry while floating-rate loan income expanded. For risk-based capital, a performing first-lien C&I loan carries a 100% risk weight, the same as the bilateral C&I it sits beside, which is what makes a rotation capital-neutral.
The supervisory backdrop has eased. On December 5, 2025, the OCC and FDIC withdrew the 2013 interagency underwriting guidance covering syndicated loans, along with its 2014 FAQs, replacing bright-line leverage thresholds with a principles-based, safety-and-soundness approach scaled to each bank (OCC news release NR-IA-2025-119, December 5, 2025). Examiners still test underwriting, risk ratings, concentration, and reserves, so a bank should expect to show a credit-selection framework, a concentration policy, and stress scenarios rather than satisfy a single leverage test. Under the Basel III endgame proposals, a first-lien C&I loan at a 100% risk weight remains straightforward under either the current or the proposed standardized treatment.
Credit Policy and Examiner Engagement
Examiners do not treat broadly syndicated loans as novel. The asset class is well represented across the regional peer set, and a portfolio is judged the way any commercial book is: on documented process, consistent underwriting, and a clear credit-policy framework. Caird’s process is built to that standard. Every investment memo works through the risk factors that guidance named, among them sustainable capital structure, total leverage, capacity to repay, risk-adjusted return, asset coverage, sponsor motivation, covenant quality, and asset quality, and it is written for an examiner’s review of credit selection rather than the investment committee alone.
Caird’s team wrote the TLB credit policy, underwriting standards, and examination-communication framework for a $7 billion publicly traded regional bank, a program examined by federal regulators and run in good standing throughout its tenure. That work is transferable. Caird can help a bank draft the credit-policy addendum for syndicated participations, structure the concentration framework, prepare stress-scenario documentation, and engage with examiners during a review.
A bank can build the capability internally, with agent relationships, datasite access, analysts who cover the asset class, and active dealer lines, or it can access the asset through a separately managed account with a specialist manager. In an SMA, the bank owns every position and approves every name under its own standards while the manager supplies the infrastructure. Either way the asset stays in the bank’s loan book.
Disclosures
Caird Investment Partners, LLC is a Dallas-based investment adviser registered with the United States Securities and Exchange Commission. Registration does not imply a certain level of skill or training, and does not imply any endorsement, review, or approval of Caird or of this material by the SEC. Additional information about Caird can be obtained by accessing https://adviserinfo.sec.gov/. Caird is a fiduciary and is subject to the rules and regulations of the Investment Advisers Act of 1940, as amended. This material is provided for informational purposes only and is not investment advice, a recommendation, a securities offer, or a solicitation to buy or sell any security or to enter into any advisory relationship. Nothing herein should be construed as legal, accounting, tax, regulatory, examination, or other professional advice; recipients should consult their own advisers. Investing involves risk, including the risk of loss; payments of principal and interest are not guaranteed. Past performance is not indicative of future results. There can be no assurance that Caird will implement its investment strategy or that it will lead to investor returns. There is no assurance that any portfolio construction objectives can be achieved or that any such portfolio will be profitable. Diversification does not eliminate the risk of loss. Actual results may vary materially and adversely. Terms are presented for illustrative and discussion purposes only and are subject to change; final terms set forth in a written agreement will prevail. Certain information has been obtained from third-party sources; although Caird believes those sources to be reliable, Caird makes no representation as to their accuracy or completeness. Opinions are as of the date of publication and are subject to change without notice. Caird has no obligation to update this material.
This material does not represent a commitment, promise, or guarantee on the part of Caird Investment Partners. Illustrative figures are hypothetical, based on stated assumptions, do not reflect any specific client or account, and are provided solely to demonstrate the analytical framework; actual results will differ. The information presented reflects the opinions and observations of Caird as of June 2026 and is based on certain assumptions and estimates that are subject to various risks. No assurance is given that the assumptions will prove to be accurate, and actual outcomes may differ materially.
Investing in broadly syndicated loans involves credit, liquidity, and interest-rate risk. Loans may trade below par and may be difficult to value or sell in stressed markets. Secondary-market liquidity can be volatile and impair exit plans. Any spread pickup is conditional on credit quality and market conditions and is not guaranteed. In a broadly syndicated facility the bank is one lender among many and does not control amendment, waiver, or restructuring outcomes.
Capital treatment referenced herein reflects Caird’s reading of regulatory capital rules applicable as of the date noted, is not regulatory advice, and should be confirmed with the bank’s own advisers and its primary federal or state regulator.
Certain comparisons between specific types of debt securities are made herein. These comparisons may be based on information that is incomplete or incorrect, and may incorporate assumptions that ultimately prove incorrect. In comparing certain types of debt securities, Caird has made subjective judgments in determining the composition of the data set, and another data set could lead to materially different conclusions.
References to regulatory guidance reflect publicly available agency material as of the date noted and are subject to change; readers should confirm current status directly with the issuing agency before relying on it. Nothing herein reflects any endorsement, approval, or non-objection by any bank regulator or examiner of Caird, of any program described, or of this material.
Caird manages client accounts in the strategies described herein, may therefore have an interest in the instruments discussed, and receives management fees that create conflicts of interest, which are described in Caird’s Form ADV Part 2A.
References
- Federal Deposit Insurance Corporation. Quarterly Banking Profile, First Quarter 2026. fdic.gov
- Federal Reserve Bank of New York. Secured Overnight Financing Rate (SOFR), data as of June 11, 2026. newyorkfed.org
- Morningstar LSTA broadly syndicated loan index data; PitchBook | LCD market commentary, 2025 through 2026. lsta.org
- PitchBook | LCD. Syndicated loan default-rate commentary, 2026. pitchbook.com
- Financial Stability Board. Report on Vulnerabilities in Private Credit. May 2026. fsb.org
- Federal Reserve Board. “Private Credit: Characteristics and Risks.” FEDS Notes, Feb. 23, 2024. federalreserve.gov
- Office of the Comptroller of the Currency & FDIC. News release NR-IA-2025-119, withdrawal of the 2013 interagency underwriting guidance covering syndicated loans, Dec. 5, 2025. occ.treas.gov
- Moody’s Ratings. Private Credit Outlook 2026 and first-lien recovery research. moodys.com
- Chernenko, S., & Scharfstein, D. Private Credit and Financial Stability. Dec. 2025. ssrn.com
- OECD. Global Debt Report 2026. oecd.org
- BankRegData. U.S. bank funding-cost and call-report aggregates, Q1 2026. bankregdata.com