Understanding DIP Financing Order – Look a Little Closer

In the realm of Chapter 11 bankruptcy, debtors often make headlines by securing Debtor-in-Possession (DIP) financing, proudly showcasing substantial figures in press releases. This financial move aims to instill confidence in suppliers, encouraging them to extend new credit based on the belief that the debtor now possesses enough liquidity to settle its obligations promptly.

However, beyond the bold headlines lies a crucial question: What assets remain unencumbered? Let's delve into the intricacies of Chapter 11 financing, considering scenarios where a debtor owes a significant amount to a bank and holds assets under the umbrella of a "blanket" lien—a lien encompassing all the debtor's assets. When assessing a debtor's financing, a critical examination is necessary to identify unencumbered assets that could play a pivotal role in Chapter 7 liquidation or in the event of the bank exercising its right to foreclose on collateral.