Debtor-in-possession financing
New lending to a company in court-supervised reorganisation that keeps operating. It is given priority over existing claims, making it a relatively secure and well-paid loan.
Where you will meet it
Debtor-in-possession financing appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain how private market strategies draw on borrowed money at each stage of an investment's life
“In distress, rescue financing and debtor-in-possession loans keep the business running.”
- Explain what defines distressed debt, the funding routes open to a troubled issuer, and the approaches investors take in distressed deals
“A troubled issuer can amend and extend loans, seek waivers, offer exchanges, sell assets, raise rescue capital, or file for court-supervised reorganisation or liquidation, where debtor-in-possession financing gains super-priority.”
Practise it
Practise debtor-in-possession financing until it is automatic: questions that explain every wrong option.
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