DIP Financing (Debtor-in-Possession Financing)

Category: finance

Specialized corporate finance arranged by a company while operating under Chapter 11 bankruptcy.

DIP financing is the "lifeline loan." Since bankrupt companies cannot secure normal credit, DIP loans are granted "super-priority" status by the court—meaning the DIP lender gets paid back before anyone else. This provides the cash necessary to keep the lights on and pay employees during the reorganization.

Common Examples

• The airline secured $500 million in DIP financing to maintain its flight schedule while it negotiated with its aircraft lessors.
• Without the court approving the DIP financing package, the manufacturer would have been forced into an immediate Chapter 7 liquidation.