The New Rules of the Game for DIP Financings

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Secured Finance Network




During the 2008-2009 financial crisis, private capital markets virtually froze. What little debtor-in-possession (DIP) financing was available could only be had on extremely onerous terms. Historically, DIP loans have been viewed as a low risk, profitable investment. They bear high rates of interest even though they have a senior claim on all of a debtor's assets. During the financial crisis of late 2008 and early 2009, the DIP lending market dried up as many major DIP lenders faced their own financial problems. Out of necessity, courts began approving DIP financing agreements that were more expensive and included many extraordinary terms". The financial markets have improved following the financial crisis and many lenders have returned to the market, resulting in significantly better economic terms for debtors. But courts continue to approve DIP financing agreements containing many extraordinary terms that had once been relatively rare. No one can dispute that the rules of the game for DIP financing appear to have permanently changed as a result of the 2008-2009 crisis.

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