financing chapter 11

8/14/2019 Financing Chapter 11

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How to do it, How to Profit from it

David Poitras

FINANCING COMPANIES IN CHAP 11

2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved


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Lender

Debtor

Unsecured

Creditor

The Players

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Cash Collateral

Debtor inPossession

(DIP) Financing

or

Preliminary Considerations

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Cash Flow/Needs

Can the debtor survive on cash and receivables?

Seasonality Timing/Collectability of Receivables

Collateral Base/Equity Cushion

Valuation

Loan Terms

Availability of Financing

Loan to Own

Preliminary Considerations: Factors to Consider

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Existing Lender(s)

Commercial Banks

Private Lenders Equity Players

Strategic Buyers Hedge

Funds

Contacts through InvestmentBankers, Financial Advisors &

Turnaround Managers

Sources of DIP Financing

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Rollover

Rollup Takeout

Syndication

Mezzanine

Forms of DIP Financing

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Lien Priority/Collateral

Package

Loan Fees

Interest Rate

Loan Amount

Term

Carve-Outs

Negotiating the DIP Loans

(Usually done Pre-petition)

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Projections

Prohibited Uses Events of Default

Releases, Waivers and

Admissions

Cross-collateralization

Negotiating the DIP Loans

(Usually done Pre-petition)

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Emergency Motion to Approve DIP Loan

Legal and Factual Issues to be Addressed in

Motion:

1. Showing Required

- FRBP 4001

- 11 U.S.C. Section 363 (cash collateral)

- 11 U.S.C. Section 364 (financing)

Obtaining Court Approval for DIP Loan

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2. Cash Flow Projections

- Variance

- Detail

- Assumptions- Critical Vendor

- Priority

- Payments to Insiders

- Professional Fees- U.S. Trustee Fees

Obtaining Court Approval for the DIP Loan

Legal and Factual Issues to be Addressed in Motion

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Negotiating with

Unsecured Creditorsand/or Committee

Setting the Emergency

Hearing on the Motion

Final Hearing on

Motion

Obtaining Court Approval for DIP Loan

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Findings of fact or recitals that bind the

estate or all parties in interest with respect to

the relative priorities of the DIP lenders lienand liens held by parties who are not parties

to the DIP loan agreement, or which create a

lien senior or equal to any exiting lien

Waivers of 11 U.S.C. 11 Section 506(3),

unless the waiver is effective only during the

period in which the debtor is authorized to

borrow funds

Potentially Objectionable or Controversial Terms

in DIP Loan Agreement

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Provisions that operate, as a practical matter,

to divest the debtor of any discretion in the

formulation of a plan or administration of the

estate or to limit access to the court to seek

any relief under other application provision of

law

Releases of liability for lenders alleged pre-

petition torts of breaches of contract

Waivers of avoidance actions under the

Bankruptcy Code



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Automatic relief from the automatic stay

upon default, conversion to Chapter 7, or

appointment of Chapter 11 trustee

Liens on avoidance actions

Waivers, effective on default or expiration,

of the debtors right to move for a courtorder to obtain the use of cash collateral or

other financing



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Questions

David M. Poitras

Jeffer Mangels Butler & Marmaro LLP1900 Avenue ofStars,7th Floor

Los Angeles, CA 90067

(310) 201-3571

[email protected]

2010 Jeffer Mangels Butler & Mitchell LLP. All rights reserved.

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