THE HEADLINE. The typical Chapter 11 debtor (the entity that is in bankruptcy) issues a press release shortly after commencing its bankruptcy case announcing to the world that the debtor has obtained “DIP” (debtor in possession) financing. The headline is a big number. The goal is to obtain new, post-bankruptcy trade credit from suppliers by convincing them that the Chapter 11 debtor now has liquidity sufficient to enable the debtor to pay its bills on time. Therefore, give the debtor more credit.

SO, WHAT’S LEFT? Assume that a debtor owes its bank $20,000,000 pre-bankruptcy. Also, assume that the bank has a “blanket” lien – a lien that covers all of the debtor’s assets. When I review a debtor’s financing, my first inquiry is whether or not there are any unencumbered assets from which I can be paid if the case becomes Chapter 7 liquidation or in case the bank forecloses on its collateral.

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