DIP financing: read the conditions as carefully as the interest rate

Separate the forms of credit

Postpetition financing is often called debtor-in-possession, or DIP, financing. Section 364 distinguishes ordinary-course unsecured credit from credit requiring court approval and from financing supported by enhanced priority or liens. A reference to DIP financing therefore does not tell a reader where the lender sits or which assets support repayment.

The financing documents and court order should identify the borrower, available commitments, permitted uses, fees, collateral, and repayment events. A large headline commitment may include amounts that cannot be drawn immediately. Availability conditions can matter more to next week's operations than the stated facility size.

Understand the request for priority

Section 364(c) permits specified priority or lien arrangements when qualifying unsecured credit is unavailable. Section 364(d) addresses financing secured by a senior or equal lien on already encumbered property. That provision requires, among other things, inability to obtain the credit otherwise and adequate protection of the existing lienholder's interest.

A financing proposal should not be described as routine merely because another company obtained a similar order. The supporting evidence, collateral position, and effects on existing creditors need their own analysis. Interim approval also should not be mistaken for the final form of the financing.

Translate milestones into operating work

An illustrative retailer might borrow enough for inventory but face a milestone requiring a sale process before its next buying season. Management should model that timetable alongside the business forecast. Financing can provide breathing room while also narrowing the choices available later. Read default provisions, budget controls, reporting obligations, and professional-fee treatment together.

Before comparing offers

• Compare actual drawable funds with total commitments.
• List all fees and repayment obligations, including amounts due at exit.
• Identify liens, priority, milestones, and consequences of a missed condition.
• Ask counsel which provisions require approval and which remain disputed.