market flex provision

flex language / market flex (provision)

USA

A provision in bank loan financing fee letters that permits the agent banks to change the amount, pricing, structure, yield, tenor, conditions and other terms of the financing if necessary to successfully syndicate the loans. This flexibility is referred to as the "flex language" or "market flex provision."

Flex language may be "closed-ended," meaning that there is a finite list of terms that can be changed if necessary to successfully syndicate the loans. Alternately, it can be "open-ended," meaning that any of the terms of the loan documents may be changed; although agent banks often agree to specific limits on changes to certain terms (such as a cap on increases in the interest rate).

Typical types of "flex" are:

• Pricing flex. Ability to increase the interest rate on the loans.

• Structure flex. Ability to reallocate portions of the loans between loan facilities or other debt securities (debt security) of the borrower or its parent company.

• Call premiums. Ability to add or increase prepayment premiums on the term loans or second lien loans.

• Covenant flex. Ability to amend the negative covenants or the financial covenants.

The flex language is included in the fee letter so that it will remain confidential.

Conversely, if a loan is "oversubscribed" because more lenders are willing to commit greater amounts to the loan than the borrower needs, the agent bank may change the terms of the loan to make it more favorable to the borrower in a process that is known as reverse flex. Reverse flex is not documented in the fee letter (or anywhere else) and is an informal arrangement between the borrower and the arrangers.

For changes to flex language resulting from the financial crisis, see Practice Note, Fee Letters Overview: Lending: Flex Language (www.practicallaw.com/5-381-0293).

Related terms

fee letter