Debtor In Possession Financing: Financing arranged by a company while under the Chapter 11 Bankruptcy process. Debtor In Possession Financing is unique from other financing methods in that it usually has priority over existing debt, equity and other claims. This type of financing will allow the business to continue uninterrupted with operations during the bankruptcy proceeding. This is designed to ensure the debtor can maintain normal business operations with customers, clients, employees, suppliers, tenants and other stakeholders. The ultimate goal is to allow the debtor to continue generating funds to support ongoing operations which will aim to satisfy creditors and successfully complete its plan.
After commencing a bankruptcy, debtor owes a fiduciary obligation to the creditors of the estate. The Debtor In Possession must do nothing to diminish the value of the estate, and must manage the business within sound business judgment in a manner which will maximize the ability to repay the unsecured creditors of the estate. In connection with this role, a debtor must not enter into any transactions outside the “Ordinary Course of Business” without obtaining court approval for such transactions. Debtor In Possession financing is a capital instrument that’s gaining more popularity but has been around for many years. With the complications surrounding Chapter 11 reorganizations, it helps to have someone on your team with solid experience who can address special financing needs.
TheCapitalDesk.com’s capital partners have more than 50+ years of collective experience and provide Debtor In Possession Financing (debt or equity) as well as customized, structured products for virtually any scenario requiring some form of a capital infusion. If your project is suffering cash flow challenges, equity may be the best financing solution so the debtor is not burdened with monthly interest payments and the financing can be repaid via a “key event” such as a sale or refinance of the asset.
TheCapitalDesk.com is a discretionary capital advisory firm who places capital from prominent institutions into middle market assets and can help you or your client. Below you’ll find an example of the bankruptcy overview used to describe the process in it’s most basic sense.
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