medium · Corporate Credit Analysis
If a borrower enters bankruptcy, what typically happens to the junior creditor's right to provide Debtor-in-Possession (DIP) financing under a standard ICA?
- The junior creditor has the first right of refusal to provide the DIP before the senior creditor.
- The DIP financing automatically wipes out the senior creditor's lien regardless of ICA terms.
- The junior creditor must obtain the senior creditor's consent or ensure the DIP does not 'prime' the senior creditor's existing lien.
- Junior creditors are legally barred by the SEC from providing DIP financing.
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