DIP Loans: The Process

For distressed borrowers that are venturing into unknown territory when it comes to the DIP Financing process, this post serves as a quick guide on what to expect during the process of obtaining “New Money DIP Financing”.

Below is a short primer on the DIP Loan process and what to expect if you are seeking Debtor-in-Possession (DIP) financing.

1. The new money DIP process begins with the court granting approval to the borrower to seek “new money DIP” from sources that are outside the current roster of lenders. This process is known as “priming” where the new money lender receives a superior status over current lenders in which its lien supersedes the liens of the original creditors. The secured lenders during this stage of the process are normally left out of the equation, unless otherwise are forced to participate regarding their lien status.

2. SalemBridge will review your file and will source new DIP lenders that are most applicable to your situation.

3. After we have successfully sourced a new money DIP lender that is most suitable for your restructuring turnaround plan, formal negotiations will begin between the new lender and any non-consenting creditors committee ultimately spearheaded by the Bankruptcy court for approval. Typically, concessions are made between both parties and an agreement is eventually made, as both parties instinctively know that is in their best interests to approve a post-petition financing arrangement.

4. During this period, certain milestones are established by all the parties involved, to solidify the DIP loan agreement and eventually garner approval by the Bankruptcy Court. Milestones generally include mandates such as reorganization filing deadlines, disclosure statement approvals, confirmation hearings, and ultimately the granting of a confirmation order. Milestones also serve as formal boundaries to safeguard the investment and the rights of the new DIP lender regarding the loan agreement. Just like any other loan arrangement, any misstep or violation throughout the arrangement could trigger your loan in default. Although every lender is unique in its approach, additional provisions, such as limited capital expenditures, business plan revisions, weekly budgets, and other stipulations can be incorporated into the loan arrangement.

5. After the final approval by the Bankruptcy Court, it is time to proceed and utilize the new money DIP Loan to support your turnaround plan and ultimately emerge from bankruptcy.

In Conclusion In simple terms, this tends to be the typical process that distressed borrowers typically undergo when seeking out new money DIP Financing.

If your company is under distress and in need of DIP Financing or need additional information, please visit us at www.salembridgecapital.com/dip-loans for more information or contact us directly for effective help and guidance at (646) 926-4391.

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