DIP Loan/ DIP Financing

Also called “DIP financing,” a DIP loan is a line of credit or other credit provided to a DIP during a bankruptcy case, based upon meticulously-drafted DIP financing agreements that are reviewed by the bankruptcy court (and often the U.S. Trustee and any Committee) for, among other things, compliance with section 364 of the Bankruptcy Code.  Because the DIP needs the money – bad – to reorganize, and because few lenders provide such financing, and because often only one lender (the DIP’s pre-petition lender) knows the DIP well enough to intelligibly assess credit risk under the time constraints, the terms of DIP loans tend to look pretty one-sided. Section 364 countenances various special protections for DIP lenders, including priority of payment equal to or even superior to that of administrative claims, or even superior to any other liens on DIP property.