medium · Corporate Credit Analysis distressed
What is the primary credit risk for a DIP lender, despite having superpriority and priming liens?
- The risk that general unsecured creditors will sue the DIP lender for violating their alleged statutory 'right to recovery' under the plan.
- The risk that administrative expenses, such as professional fees, will exceed the total remaining value of the estate, leaving no proceeds for the DIP.
- The risk that the bankruptcy court will unilaterally 'cram down' the negotiated DIP facility's terms and reduce its contractual interest rate to zero percent.
- The risk that the company will successfully reorganize and repay its entire pre-petition debt load ahead of the originally negotiated schedule.
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