One of Wall Street’s favorite ways to make money off corporate defaults is being tested — just as the economic crisis pushes more companies to the brink of bankruptcy, WSJ Pro Bankruptcy reported. Companies seeking bankruptcy protection often need a fresh injection of financing to keep their operations running while they search for buyers or renegotiate debts. Funding a company’s bankruptcy process has long been a safe and lucrative business for banks and asset managers, earning them high fees and interest rates with minimal risk. Known as debtor-in-possession loans (DIPs), these deals normally come with special protections and collateral rights to ensure they are repaid fully in cash ahead of other creditors. But some investors have gotten burned on DIPs since the coronavirus outbreak began wreaking havoc on the U.S. economy, turning what looked like sure bets into problem investments. In recent weeks, an oil driller, restaurant operator and movie-theater supplier have put their DIP lenders at risk of losses. The rash of mishaps has market participants worried DIPs will become both harder to find and more expensive just when American corporations need them most. Finding asset buyers or exit lenders is now a tall order with financial markets in turmoil, oil prices collapsing and unemployment soaring. Some DIP lenders have taken losses after the pandemic upended business projections, slashing enterprise values so severely that not even a company’s top-ranking debts could be paid off. Read more.
Have you read "This DIP Loan Brought To You By Someone Who CARES! (Or “I’m From The Government And I’m Here To Help You”)" by Tom Salerno's and other bankruptcy professionals?