Debtor-in-possession financing
Template:Short description 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]
DIP financing may be used to keep a business operating until it can be sold as a going concern,[4] if this is likely to provide a greater return to creditors than the firm's closure and a liquidation of assets. It may also give a troubled company a new start, albeit under strict conditions. In this case, "debtor in possession" financing refers to debt incurred while in bankruptcy, and "exit financing" is debt incurred upon emerging from reorganisation under bankruptcy law.[5]
Examples
Two notable examples are the government financing of Chrysler[6] and General Motors[7] during their respective 2009 bankruptcies.
On January 20, 2026, asset management firm GoldenTree, founded by billionaire Steve Tananbaum, committed to buying a roughly $200 million portion of the debtor-in-possession financing of troubled retailer Saks Global.[8]
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[9] 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.[10]
See also
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References
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- ^ Page Module:Citation/CS1/styles.css has no content.Lyndon Maither, B.C. (2013). The Canada Income Tax Act: Enforcement, Collection, Prosecution, 4th Ed. Lyndon Maither. p. 319. ISBN 9781300772286.
- ^ Page Module:Citation/CS1/styles.css has no content.Stuhl, S.A.; Vault (Firm) (2003). Vault Guide to Bankruptcy Law Careers. Vault Incorporated. p. 147. ISBN 9781581312577.
- ^ Page Module:Citation/CS1/styles.css has no content.Liu, L. (2008). Subnational Insolvency: Cross-Country Experiences and Lessons. World Bank. p. 20.
- ^ Page Module:Citation/CS1/styles.css has no content.Lyndon Maither, B.C. The Canada Income Tax Act: Enforcement, Collection, Prosecution, 6th Edition.
- ^ Page Module:Citation/CS1/styles.css has no content.Hecker, J.E.Z. (2006). Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues. DIANE Publishing Company. p. 10. ISBN 9781422304327.
- ^ Page Module:Citation/CS1/styles.css has no content.Engel, G.T. (2010). Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial Statements. DIANE Publishing Company. p. 61. ISBN 9781437926811.
- ^ Page Module:Citation/CS1/styles.css has no content.Barofsky, N. (2011). Troubled Asset Relief Program (SIGTARP): Quarterly Report to Congress by the Office of the Special Inspector General (SIGTARP)(October 26, 2010). DIANE Publishing Company. p. 145. ISBN 9781437942019.
- ^ Page Module:Citation/CS1/styles.css has no content."GoldenTree to buy about $200 million of Saks Global bankruptcy financing, Bloomberg News reports". Reuters. 2026-01-20. Retrieved 2026-01-20.
- ^ Page Module:Citation/CS1/styles.css has no content.Warren, E. (2010). Use of TARP Funds in the Support and Reorganization of the Domestic Automotive Industry. DIANE Publishing Company. p. 44. ISBN 9781437923698.
- ^ Page Module:Citation/CS1/styles.css has no content.Pomerleano, M.; Shaw, W.; Bank, W. (2005). Corporate Restructuring: Lessons from Experience. World Bank. p. 130. ISBN 9780821359280.
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
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