DIP Financing
Corporate Credit Analysis glossary · Distressed Debt & Restructuring
Definition
Financing provided to a debtor during a Chapter 11 case, typically with priming priority over pre-petition secured debt under section 364 of the US Bankruptcy Code.
DIP Financing in plain English
When a company is in Chapter 11 bankruptcy, it's broke and scary to lend to — yet it often needs fresh cash just to keep the lights on while it reorganizes. "DIP financing" is a special loan made to that company during the case, and to convince anyone to hand money to a bankrupt business, the law (Section 364 of the US Bankruptcy Code) lets that new loan jump to the FRONT of the repayment line — ahead of lenders who were already owed money before the bankruptcy (that's what "priming" means). It's like a family agreeing that whoever pays for the emergency room bill gets paid back first, before the older debts, because without that rescue money nobody gets anything.
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