Debtor in Possession Financing–Financing a Debtor after a Chapter 11 Filing

Companies frequently file Chapter 11 cases because their cash flow is insufficient to finance operations and debt service. The idea is to take advantage of the automatic stay to hold off existing creditors during the time it takes to restructure the Debtor’s obligations by a Plan of Reorganization. Debtors hope that by minimizing cash outflows to creditors, they can concentrate on “fixing” the business or leasing up the property to increase revenues.

But who will provide the necessary cash flow to bridge the gap between the filing of the Chapter 11 case and the confirmation of the Plan? Often, the Debtor’s business is incapable of generating sufficient cash at the outset. When that happens, Debtors seek to obtain an order of the Bankruptcy Court under Section 364 to allow post-petition borrowing, or as it is commonly known, “DIP Financing.” The acronym “DIP” stands for “Debtor in possession” and refers to the company that filed the Chapter 11 case.

The JMBM Special Assets Team™ handles DIP Financing motions for clients ranging from small to large on an ongoing basis. Workout professionals rely on us to help structure and carry out post-petition lending that protects a lender’s interests and aims to get the loans paid off.

One of the great benefits of Chapter 11 is its flexibility, and DIP Financing is no exception. DIP Financing comes in many variations and can be molded to fit the needs of a particular Chapter 11 Debtor. My partner, David Poitras, has put together a PowerPoint presentation that summarizes DIP Financing in a nutshell. This handy checklist is a great starting point for workout professionals who are dealing with a Chapter 11 Debtor that needs financing after the bankruptcy case has been filed. I suggest that you use David’s piece to help you ask the right questions when a Chapter 11 Debtor asks whether you will provide DIP Financing.

Financing Chapter 11

This is Dick Rogan, bank lawyer and author of www.SpecialAssetsLawyer.com, signing off for now. Join us again soon to check out what’s new in the World of Workouts.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.

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Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at RRogan@JMBM.com, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.