medium · Corporate Credit Analysis distressed
A 'double-dip' transaction provides a new creditor with two distinct claims on the borrower's enterprise value.
How is the first of these claims (the 'first dip') typically established?
- Through an intercompany loan from the borrowing entity to an operating subsidiary, which is then pledged as collateral.
- Through issuing a hybrid instrument classified as debt at the subsidiary level but equity at the parent.
- By utilizing a springing lien that attaches to inventory only once the fixed charge coverage ratio drops materially.
- By obtaining a joint and several guarantee from the parent entity and all of its restricted subsidiaries under the credit agreement.
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