Adequate Protection
Corporate Credit Analysis glossary · Distressed Debt & Restructuring
Definition
In US Chapter 11, payments or other protections provided to secured creditors to compensate for any decline in the value of their collateral during the case.
Adequate Protection in plain English
When a US company files for Chapter 11 bankruptcy, it gets to keep operating and using its assets while it reorganizes — but that can hurt a lender who was counting on a specific asset (the "collateral") as their safety net. Adequate protection is the court's way of keeping that lender whole: if the collateral is losing value during the case, the company must make up for it, often with cash payments or extra claims. Think of it as being forced to top up a security deposit while your stuff is still being used, so the person holding it doesn't quietly lose out.
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