DIP Financing and Covenants
Let's say a company enters Chapter 11 protection because recent financial missteps have made it impossible for them to meet their debt/interest obligations. The company is still in compliance with its covenants preventing the company from raising more debt senior to its current most senior debt and any ratio covenants as well. Is the company then able to take on DIP financing even though it may then cause the company to violate some of those covenants? I guess at that point they are already in the bankruptcy process, but is this allowed/does this happen?
Thank you!
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When in chapter 11, there's an automatic hold on all pre-petition claims, so these covenants essentially is gone now. Bankruptcy is like a world of its own rules, once you enter it most outside rules don't apply
That’s basically how you go from section 364(a) to 364(d) when shopping around for dip
I think Im saying the same thing as comradegekko just don’t know exact code provision - code allows for DIP only if prepetition creditors are “adequately protected”, as in their claim, which will in vast majority of cases be secured, is overcollateralized by at least the value of the DIP (vast majority of DIP lenders are prepetition creditors anyway since they can often rollup their prepetition claim into the DIP).
yes
Where is this graphic from?
Some training materials
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