What is “debtor in possession” financing?

Debtor in possession financing (DIP financing) is a type of financing available in bankruptcy cases under Chapter 11 of the Bankruptcy Code. It is a loan granted to a bankrupt company by lenders or other creditors, with the company itself, rather than the court, controlling the money. It is intended to help a bankrupt company reorganize its financial affairs and become viable. DIP financing is usually secured by the bankrupt company’s assets as collateral, and is subject to the approval of the bankruptcy court. The loan agreement may also provide that the creditors can take certain actions if the company does not meet certain conditions. The bankruptcy court usually requires that the lender be adequately protected, meaning that the loan is given priority over any other claims that the debtor may have against it. The primary benefit of DIP financing is that it allows a bankrupt company to continue to operate and generate revenue while it restructures its finances. This helps the company avoid liquidation, which would lead to the loss of jobs and assets as well as the dissolution of the company. The financing can also help the company obtain more favorable terms in its reorganization, such as an increase in working capital or a reduction in debt. DIP financing is often used to help businesses reorganize their financial affairs while avoiding liquidation. It is an effective way for bankrupt companies to continue operations and to reduce their financial burden. It is important for businesses to understand the benefits and risks associated with DIP financing so they can determine if it is the right choice for their situation.

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What is “debtor in possession” financing?

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