There are many reasons why an enterprise might seek Chapter 11 protection. Among them, to right-size a bloated balance sheet, to implement a strategic disposition under difficult financial or operating conditions, to manage or shed liabilities, ordinary course or unforeseen, that can’t get worked out without Chapter 11 most protections, or to equitably distribute assets to competing and impatient creditors. Directors and officers of enterprises that must restructure in-court face a common problem — securing adequate liquidity runway to meet the objectives of the Chapter 11 case. Many companies enter Chapter 11 only after significant efforts to restructure and secure sources of liquidity outside of bankruptcy to avoid the costs and risks to enterprise value and recoveries that are attendant with the Chapter 11 process. Lenders, particularly those who are not lending defensively to protect pre-petition loans made to the company, however, will often avoid financing companies on the verge of failure. However, many lenders will offer financing to entities in or planning for Chapter 11 under the special provisions in the Bankruptcy Code affording unique protections to parties who extend credit to in-court debtors, commonly known as debtor-in-possession (“DIP”) financing. As discussed below, this financing may come from an existing secured lender or new lenders to the situation who can get comfortable with the credit risk.

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