The Nuts and Bolts of DIP Financing

Debtors in Chapter 11 bankruptcy cases cannot survive without access to cash to continue operations, pay vendors and professionals, and work to restructure debt and/or sell assets.  Those necessary funds come from two main sources: 1) funds the debtor has or can generate (in either case, generally the collateral of the secured lender) or 2) new money coming into the estate in the form of a post-petition debtor-in-possession (DIP) loan.

DIP financing is a specialized type of lending provided to companies that are in Chapter 11. This financing provides the liquidity the existing management needs to operate the business while restructuring, and it also signals to suppliers and customers that the company has liquidity and a path forward following the Chapter 11 process.

Harold Israel recently participated in “The Nuts and Bolts of DIP Financing,” a Financial Poise webinar, with Maria Carr of McDonald Hopkins LLC, Zachary McKay of Jackson Walker, and Evan Hill of Cravath Swaine & Moore LLP, discussing key topics around DIP financing. Their conversation touched on: 

• Debtor financing and the use of cash collateral
• Adequate protection issues for the debtor’s lenders
• Motions for authorization to use cash collateral and/or post-petition financing
• Resolving cash collateral disputes by financing the debtor’s business
• The advantages of 364 financing over agreements for use of cash collateral
• Other considerations including second-lien financing, issues with commingling proceeds, after-acquired property, and more

To watch the full webinar, click here.

Facing questions around DIP financing? Reach out to Harold Israel or another member of LP’s Financial Services & Restructuring Group.