It stands for first-loss piece or first-loss position; a tranche that comes with the lowest priority amongst the entire set of tranches constituting a securitized structure (CMBS structure, CMO structure, CDO structure, etc.)

Losses that may arise from defaults on underlying debt/ loans will be charged against the principal balance of such a tranche that stands poised to firstly absorb losses.

Each tranche in a securitized structure carries its own risks, rewards and maturities that allow investors to choose the tranche that better reflects, and corresponds to, their investment objectives. The first-loss piece/ tranche has the lowest priority in relation to any claims for repayment against the underlying collateral. As such, it is considered a junior tranche, where it is set to first absorb losses in the case of default.

A first-loss piece/ position is also referred to as an equity tranche or a residual tranche.