Back to Money Strategies
distress

DIP Financing

"First claim = defines new capital structure"

Debtor-in-Possession financing provided to companies in Chapter 11 bankruptcy, receiving super-priority status ahead of all pre-existing claims.

How It Works

  1. 1

    Company files Chapter 11 bankruptcy

  2. 2

    Needs operating capital to continue business during restructuring

  3. 3

    DIP lender provides financing with court approval

  4. 4

    DIP loan receives 'super-priority' administrative claim

  5. 5

    DIP lender has significant influence over emergence plan

Key Mechanics

Super-priority status = first to be repaid

Cross-collateralization can secure pre-petition claims

Roll-up provisions convert old debt to DIP priority

Milestones and conditions give lender control

Regulatory Context

Bankruptcy Code Section 364 governs DIP financing. Court must approve terms. Creditor committees may object to onerous provisions.