Term used in Underwritten Financings to refer to an underwriter’s ability to adjust pricing or certain terms during syndication. Flex terms and the situation in which they can be triggered are an item of significant negotiation between underwriters and borrowers given diverging interests. Ultimately, the borrower looks to limit the underwriters’ ability to use Flex to situations where this is absolutely necessary in order to ensure a successful syndication of the entire amount of the underwritten debt financing.
Flex can be further categorized into:
Pricing Flex – the ability for an underwriter to increase pricing, either in the form of margin or original issue discount, or a combination of the two) and
Documentation or Structural Flex – the ability to change terms other than pricing in the debt documents. This can include amending certain rations/covenants, introducing junior debt tranches or different instruments, in case of multi-currency transactions – changing the currency split across tranches, or any other structural aspects of the transaction in question.
See also: Underwritten Financing