What Is A Dip Credit Agreement

Section 364 of the Bankruptcy Act allows a debtor to obtain credit in a chapter 11 case in a variety of ways. [1] With respect to the incurrence of debts outside the normal course of the debtor`s business, a debtor may receive an unsecured loan, with the creditor receiving a senior claim for administrative costs if the bankruptcy court authorizes the debtor to do so after notice and hearing. If the debtor is unable to obtain an unsecured loan, a bankruptcy court may either approve a loan extension that overighs the debtor`s ordinary administrative costs, or the debtor to obtain a secured loan. If a debtor determines that it cannot obtain credit on another, more favourable basis, bankruptcy courts may also allow a debtor to borrow funds on a secured basis through a “seed” DIP loan.