DIP Financing: When the Lender Writes the Script

In Chapter 11 bankruptcy, the phrase “cash is king” has never been more true. That’s where DIP financing—or Debtor-in-Possession financing—comes in. It’s the funding that allows a company to keep operating during bankruptcy. Suppliers get paid. Employees stay on payroll. Customers get what they ordered. The business continues operations. And all of it runs through a tightly negotiated document – the DIP budget.

For lenders, the DIP process is more than a lifeline to the business—it’s an opportunity to shape the endgame. In many cases, existing lenders step in as DIP lenders, offering new funds in exchange for tighter controls, higher priority, and a roadmap that serves their interests. Through the DIP budget, they influence everything from how much the company can spend on professional fees, to how long the business has to sell itself, reorganize, or liquidate.

When used effectively, DIP financing stabilizes the company and preserves value. But make no mistake: lenders often use the DIP budget to improve their own position – it’s rare that a lender puts more money into a failed loan out of altruism. They can fund just enough to get through a short marketing process, tie milestones to specific outcomes (like a sale), or require roll-ups of prepetition debt—converting old debt into higher-priority new debt under the DIP loan (or, put another way, taking a non-performing loan on their balance sheet, which might have regulatory implications, and turning it into a performing loan thanks to a court order). These moves can significantly alter the landscape for unsecured creditors or other stakeholders.

That’s why it’s critical to have someone at the table who understands both the financial and strategic dimensions. Gavin/Solmonese is often brought in as an advisor or Chief Restructuring Officer to help navigate these complex negotiations. We ensure that the DIP process aligns with the broader restructuring goals—whether that means protecting a company’s runway, balancing stakeholder interests, or helping a lender structure a smart, defensible deal.

The DIP budget isn’t just numbers on a spreadsheet. It’s the script for what happens next. And who writes it—and how—is often the difference between a true turnaround and a controlled descent.