Debtor-in-Possession Financing

Under Section 364(c) of the Bankruptcy Code, a post-petition lender may be entitled to a super-priority administrative claim, a lien on unencumbered assets or a junior lien on encumbered assets if the debtor is unable to obtain unsecured debt. Section 364 permits the granting of liens that are equal to or prime pre-petition liens if adequate protection can be provided to the existing lienholders and the debtor “is unable to obtain such credit otherwise.” 11 U.S.C. ' 364(d) “Unable to obtain unsecured debt” or “unable to obtain such credit otherwise” means that it is incumbent upon the debtor to show that it cannot obtain financing that is unsecured or secured by a junior lien.

The Code is silent as to what other terms may be included in a post-petition loan transaction. However, most debtor-in-possession financing includes terms beyond those contained in a typical loan transaction, and grant the lender rights or effectuate waivers which arguably are less related to the post-petition loan than to protecting the pre-petition debt. There is often simply no opposition by the creditor's committee or other parties in interest because they conclude that alternate financing on more favorable terms is unavailable. It is difficult for courts to deny motions to approve debtor-in-possession financing when all the parties are in favor of it. Even post-petition financing that violates bankruptcy principles has been justified as being consistent with the Code's purpose of encouraging business reorgani-zation if the debtor has no other source and needs the post-petition credit to operate.