Market flex is the right of arrangers (bookrunners) in a loan syndication to unilaterally adjust the pricing, structure and/or terms and possibly the total amount of the financing to the extent necessary to ensure its successful syndication. Loan syndication follows a market flex model for the pricing of syndicated loans. The syndication strategy determines how if and how the financing should be flexed.
With the market flex model, the lead bank nevertheless needs to step in to drain more shares if a deal has difficulty closing.
A type of market flex that enables the syndicate to reallocate amounts between tranches of a multi-tranche facility during syndication to reflect investor interest and to ensure its successful syndication is structure flex. When liquidity is high, the size of more expensive tranches, such as mezzanine, may be decreased and the cheaper tranches, such as first- or second-lien, increased.
Lead arrangers must often flex the structure of leveraged acquisition financings they syndicate. When liquidity is high, the size of more expensive tranches, such as mezzanine, may be decreased and the cheaper tranches, such as second-lien or first-lien, increased.
A HoldCo flex is a type of structure flex used in acquisition finance that permits lead arrangers to restructure the financing by reallocating debt that was borrowed by the operating company to the holding company. The resulting debt is essentially equity, because payments on it can only be paid with dividends up from the operating company.
A closed flex is a market flex structured such that only specified changes are allowed, such as a margin flex or structure flex. A market flex structured such that lead arrangers may change all terms, conditions, pricing and/or structure deemed necessary for successful syndication, possibly subject to some limits, is an open flex.