Debtor In Possession (DIP) Financing COVID 19 Winston Rowe and Associates
Many businesses across the country are experiencing financial ruin because of the COVID 19 pandemic shut down. Understanding Chapter 11 debtor-in-possession bankruptcy financing is critical to your business survival.
By: Winston Rowe and Associates
During Chapter 11 bankruptcy a business will file to be protected from creditors while it works to reorganize and restructure its business. Additionally, during this process, a bankruptcy court will also allow the business to secure any additional financing from lenders in efforts to continue its operations.
These post-bankruptcy lenders, under the bankruptcy court's jurisdiction, assume a senior position on liens and security interests of the business assets.
Typically, this is done with consent of the pre-bankruptcy senior lenders. The theory behind this process is that through the continued operation of the business, the debtor is able to achieve enough funds to reorganize and get itself into a position to be able to repay all the debts it owes.
Importance of DIP Financing
DIP Financing is crucial to the company during a Chapter 11 bankruptcy, because it essentially extends help to a business to be able to maintain payroll and suppliers, stabilize the current operations, and restructure itself for the future, so that it can repay creditors and hopefully emerge from bankruptcy.
Usually, a business going through bankruptcy can obtain DIP financing only through giving its post-bankruptcy lenders protection senior lien positions. This ensures the lender will be fully repaid, even if the company needs to be liquidated.
The senior lien position also limits the business to strict payment terms. Sometimes this can hinder a businesses' reorganization process. DIP financing lenders are additionally protected through strict oversight by a bankruptcy court. The court's role is to assure that new credit can be extended to a business in the middle of bankruptcy.
A typical candidate for DIP financing is able to show lenders that their company has a valid plan with a foreseeable outcome to turn its business around. This is not an option for businesses that just want to liquidate their company.
The phrase 'Debtor in Possession' refers to the fact that the current management and board of directors still remain 'in possession' of the business after its Chapter 11 bankruptcy filing.
Winston Rowe and Associates capital sources bring a lot of experience to the table when working with DIP Financing. It is best for their clients to come to them prior to filing for bankruptcy, so they are able to help you connect with their capital sources to establish the best plan and prepare for the Chapter 11 filing.
You can contact Winston Rowe and Associates at https://www.winstonrowe.com