Restructuring Advisors

Debtor in Possession

Companies that enter into Chapter 11 reorganization and continue operating are known as the debtor in possession, or the term used while in bankruptcy “DIP”. In a Chapter 11 reorganization proceeding, pre-bankruptcy creditors are, for the most part stayed from enforcement remedies and do not receive payment of principal or interest while the company seeks to rationalize its business and formulate a plan of reorganization to restructure its balance sheet.

The DIP typically finds itself in need of credit immediately after filing their Chapter 11 case. While most of its pre-bankruptcy liabilities are frozen, the company is likely to need cash immediately to cover payroll and the up-front costs to stabilize the business. Although post-bankruptcy credit extended by vendors is granted administrative expense priority over all pre- bankruptcy unsecured claims, it is not uncommon for vendors to place Chapter 11 debtors on C.O.D. or C.B.D. until the company stabilizes. DIP financing, (also referred to as working capital financing) provides the company with ongoing funding of their operations.

DIP loans are typically asset-based, revolving working-capital facilities put into place at the onset of Chapter 11 to provide both immediate cash as well as ongoing working capital during the reorganization process. In general, the most important element of DIP financing comes from helping the company restore vendor and customer confidence in the company’s ability to maintain its liquidity.

The staff of Restructuring Advisors team is well known and highly regarded throughout the financial services marketplace that provides DIP financing. Our specialists are familiar with the process of negotiating these credit facilities and can make certain that you receive not only the funds required but also the best available terms.