Debtor-in-possession financing

{{Short description|Special form of financing}} '''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<ref name="google">{{cite book|title=The Canada Income Tax Act: Enforcement, Collection, Prosecution, 4th Ed.|author=Lyndon Maither, B.C.|year=2013|publisher=Lyndon Maither|isbn=9781300772286|url=https://books.google.com/books?id=mrxbeR2IiXgC|page=319}}</ref>). Usually, this debt is considered senior to all other debt, equity, and any other securities issued by a company<ref name="google2">{{cite book|title=Vault Guide to Bankruptcy Law Careers|author1=Stuhl, S.A.|author2=Vault (Firm)|date=2003|publisher=Vault Incorporated|isbn=9781581312577|url=https://books.google.com/books?id=96kIg4mRZQkC|page=147}}</ref> — violating any ''absolute priority rule'' by placing the new financing ahead of a company's existing debts for payment.<ref name="google3">{{cite book|title=Subnational Insolvency: Cross-Country Experiences and Lessons|author=Liu, L.|date=2008|publisher=World Bank|url=https://books.google.com/books?id=FUQRqYb_oj0C|page=20}}</ref>

DIP financing may be used to keep a business operating until it can be sold as a going concern,<ref name="google4">{{cite book|title=The Canada Income Tax Act: Enforcement, Collection, Prosecution, 6th Edition |author=Lyndon Maither, B.C.|url=https://books.google.com/books?id=jZjeAgAAQBAJ}}</ref> 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.<ref name="google5">{{cite book|title=Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of Underlying Structural Issues|author=Hecker, J.E.Z.|date=2006|publisher=DIANE Publishing Company|isbn=9781422304327|url=https://books.google.com/books?id=NhDjMtWwvwMC|page=10}}</ref>

==Examples== Two notable examples are the government financing of Chrysler<ref name="google6">{{cite book|title=Financial Audit: Office of Financial Stability (Troubled Asset Relief Program) Fiscal Year 2009 Financial Statements|author=Engel, G.T.|date=2010|publisher=DIANE Publishing Company|isbn=9781437926811|url=https://books.google.com/books?id=D3NU3Ohs0hsC|page=61}}</ref> and General Motors<ref name="google7">{{cite book|title=Troubled Asset Relief Program (SIGTARP): Quarterly Report to Congress by the Office of the Special Inspector General (SIGTARP)(October 26, 2010)|author=Barofsky, N.|date=2011|publisher=DIANE Publishing Company|isbn=9781437942019|url=https://books.google.com/books?id=7tcGqgQvLTYC|page=145}}</ref> 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.<ref>{{Cite web |url= https://www.reuters.com/business/goldentree-buy-about-200-million-1-billion-bankruptcy-financing-saks-global-2026-01-20/ |title= GoldenTree to buy about $200 million of Saks Global bankruptcy financing, Bloomberg News reports |date=2026-01-20|access-date=2026-01-20 |website=Reuters|language=en}}</ref>

==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<ref name="google8">{{cite book|title=Use of TARP Funds in the Support and Reorganization of the Domestic Automotive Industry|author=Warren, E.|date=2010|publisher=DIANE Publishing Company|isbn=9781437923698|url=https://books.google.com/books?id=FODXmeZA6xgC|page=44}}</ref> 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.<ref name="google9">{{cite book|title=Corporate Restructuring: Lessons from Experience|author1=Pomerleano, M.|author2=Shaw, W.|author3=Bank, W.|date=2005|publisher=World Bank|isbn=9780821359280|url=https://books.google.com/books?id=7MbS7-At5XAC|page=130}}</ref>

==See also== {{div col|colwidth=22em}} *Debtor in possession *Bankruptcy *Bankruptcy alternatives *Shareholder loan *Seniority (financial) *Bail out (finance) *Default *Distressed securities *Insolvency *Liquidation {{div col end}}

==References== {{reflist}}

==External links== *[http://www.marketwatch.com/news/story/calpine-closes-5-billion-dip/story.aspx?guid={DE41D866-D578-4355-99D2-65290DB02DA5}&dist=rss&siteid=mktw Calpine closes $5 billion DIP financing] *[https://web.archive.org/web/20080611073507/http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter11.html#cash Bankruptcy basics - Operating capital] *[http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+11USC364 11 USC 364 - Obtaining credit] *[https://www.law.cornell.edu/rules/frbp/rule_4001 Federal Rules of Bankruptcy Procedure - Rule 4001c: Obtaining Credit]

Category:Business terms Category:Corporate finance Category:United States bankruptcy law