DIP Lending and the Death of Emergence : Reorganization Outcomes Post-Crisis

In this paper we examine bankruptcy successes and failures before and after the credit crisis for those debtors that sought DIP loans. We found that post-crisis, for companies that filed for bankruptcy stand alone emergencies decreased (percentage-wise), while sales increased. Additionally, we found that post-crisis private equity fund involvement in debtor in possession (“DIP”) loans increased, and DIP loan interest rates increased as well. To supplement the analysis we surveyed practitioners, interviewing two Federal bankruptcy judges, a restructuring investment bank managing director, as well as DIP lenders. These interviews and our data support the view that while DIP loans were once a path to emergence, DIP loans are now a path to sale