medium · Corporate Credit Analysis
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 'right to recovery'.
- 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 'cram down' the DIP facility and reduce its interest rate to 0%.
- The risk that the company will successfully reorganize and pay off its pre-petition debt early.
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