Debtor-in-Possession Financing in Bankruptcy
Handbook on Corporate Bankruptcy Law (Edward Elgar, Forthcoming)
23 Pages Posted: 2 Jun 2017 Last revised: 27 Mar 2018
Date Written: November 2017
This chapter is forthcoming in an edited research handbook on corporate bankruptcy law. It reviews the theoretical and empirical scholarship on debtor-in-possession (DIP) financing, particularly as it bears on the more controversial features of DIP loans: financial terms such as cross-collateralization, roll-ups and avoidance protection, and control provisions in covenants that impose milestones and deadlines on the bankruptcy process. The paper highlights two fundamental challenges: what contract provisions are needed to mitigate the liquidity problem of the distressed debtor and whether these provisions lead to an inefficient distortion of asset-deployment decisions in bankruptcy.
Keywords: debtor-in-possession financing, corporate reorganization, bankruptcy, debt financing
JEL Classification: G33, G32, K2
Suggested Citation: Suggested Citation