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Guiding Clients Through Chapter 11 With DIP Financing

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By Casey C. Sullivan, Esq. on September 07, 2016 11:57 AM

A client company has filed Chapter 11 bankruptcy. Now the real struggle begins. Without access to capital, the most promising businesses may go under before they are able to reorganize and exit bankruptcy. Thankfully, so-called "debtor-in-possession" loans are commonplace.

Commonplace, but not straightforward. For attorneys guiding clients through bankruptcy, understanding DIP financing is essential, from the basics, like strategies for lining up DIP financing and common features in DIP credit agreements, to emerging trends that are impacting everything from who is offering DIP loans to who can secure them.

Dipping Into DIP Financing

DIP financing serves the interests of both the company and the lender. First, DIP financing is traditionally provided by a debtor's existing lenders. They, after all, have the most to lose should a company go under and, thus, the most incentive to helping it stay afloat through Chapter 11. But these "pre-petition lenders" aren't the only source of DIP financing, as institutional investors, motivated by investment yield, have also moved into the DIP financing sphere.

DIP financing is, of course, essential to companies in Chapter 11. It helps provide the money needed to make the money to pay back creditors and keep the business afloat. Obtaining DIP financing also sends an important message about the company's long-term health and the willingness of others to continue investing in it.

Guiding You, as You Guide Clients

But securing DIP financing can be difficult, both in terms of timing, strategy, and execution -- not to mention navigating complex bankruptcy rules. Should your DIP facility include "milestone" covenants, like the approval of a reorganization plan? How much should you leverage potential DIP lenders against each other? How will your approach be different for pre-petition lenders and post-petition institutional investors?

Don't worry -- the answers to these questions are out there. (Though they're a bit too complex for a single blog post.) Thomson Reuters Aspatore's "Debtor-in-Possession and Exit Financing: Leading Lawyers on Securing Funding and Analyzing Recent Trends in Bankruptcy Financing" brings you insider tips on DIP financing. (Disclosure: Aspatore is one of FindLaw's sister companies.)

Part of the "Inside the Minds" series, this special report lays out basics, strategies, and emerging trends to help guide you as you guide clients, all from some of the nation's leading experts on DIP financing. That's information on prepping documents prior to looking for DIP financing, to converting DIP financing to exit financing, to examining how changes in credit markets are impacting DIP lenders -- all from partners at some of the country's most important law firms.

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