Glossary
Credit and risk
What is flex?
The underwriter's right to change pricing within a cap if demand is weak.
Upward flex protects the bank; reverse flex cuts the price for the sponsor when the book is oversubscribed. The cap is a contract.
A worked example
A bank commits to a loan at SOFR + 400 with 75bps of flex. If investors won't buy at 400, the bank can take the spread to 475 without asking the borrower, so it isn't stuck holding a loan it can't sell.
Where it catches you in the game
- The flex cap slider decides how much widening your commitment absorbs before your fee does.
It comes up most on the leveraged finance desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what flex does to your returns.