Debtor-in-possession financing

Debtor-in-possession financing

Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law (such as Chapter 11 bankruptcy in the US or CCAA in Canada[1]). Usually, this debt is considered senior to all other debt, equity, and any other securities issued by a company[2] — violating any absolute priority rule by placing the new financing ahead of a company's existing debts for payment.[3]

It may be used to keep a business operating until it can be sold as a [5]

Examples

Two notable examples are the government financing of Chrysler[6] and General Motors[7] during their respective 2009 bankruptcies.

American law vs. French law

The willingness of governments to allow lenders to place debtor-in-possession financing claims ahead of an insolvent company's existing debt varies; US bankruptcy law expressly allows this[8] while French law had long treated the practice as soutien abusif, requiring employees and state interests be paid first even if the end result was liquidation instead of corporate restructuring.[9]

See also

References

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External links

  • Calpine closes $5 billion DIP financing
  • Bankruptcy basics - Operating capital
  • 11 USC 364 - Obtaining credit
  • Federal Rules of Bankruptcy Procedure - Rule 4001c: Obtaining Credit