Distress & Turnarounds

Debtor in Possession Financing

The loan that lets a bankrupt company keep the lights on, and the document that quietly decides how the whole case will end.

  • Advanced
  • 8 min total
  • 12 chapters

What decision this helps you make: Whether to take, provide, or object to a debtor-in-possession facility, and what to fight for in the order before it becomes the case's constitution.

What this topic is

Debtor-in-possession financing is new money lent to a company after it has filed for Chapter 11, on terms approved by the bankruptcy court. Because the court can grant the new lender priority ahead of existing creditors, a company nobody would lend to on Monday becomes financeable on Tuesday.

Why it matters

Almost no operating business survives a filing without it: payroll, suppliers, and professionals all need funding while the case runs. But the facility comes with a budget, milestones, and covenants, and those terms, not the plan negotiation months later, usually determine whether the company reorganizes, gets sold, or is wound down.

Who should learn it

Directors and CFOs approaching a filing, credit funds evaluating a DIP opportunity, existing lenders deciding whether to defend their position, and advisers who need to read a DIP order for what it actually does.

What you will understand

  • The section 364 priority ladder, from ordinary unsecured credit up to a priming lien
  • What adequate protection means and who has to prove it
  • Why roll-ups, milestones, and the carve-out are the real negotiation
  • How a DIP facility converts a financing into control of the outcome

Prerequisites

Common misconception

"DIP financing is emergency working capital." It is a control document that happens to carry money. The budget says which vendors get paid, the milestones say how many weeks the company has to find a buyer, the covenants say what a variance means, and the roll-up says where the lender sits when the money runs out. Companies that negotiate the interest rate and skim the milestones have negotiated the least important term in the agreement.