A dip loan agreement template is a legal document that outlines the terms and conditions of a debtor`s financing arrangement with a lender during the debtor`s Chapter 11 bankruptcy proceedings. A dip loan, or debtor-in-possession loan, is typically the first form of financing that a debtor seeks after filing for Chapter 11 bankruptcy protection.
The dip loan agreement template typically includes important details such as the principal amount, interest rate, repayment terms, collateral requirements, and covenants that the debtor must adhere to in order to receive and maintain the dip loan. The agreement may also include provisions regarding the lender`s rights and remedies if the debtor defaults on the loan.
It is important for both the debtor and the lender to carefully review and negotiate the terms of the dip loan agreement before signing. For the debtor, the dip loan is often critical to their ability to continue operating and restructuring their business during the bankruptcy process. For the lender, the dip loan represents a potentially risky investment, and they will want to ensure that they have appropriate protections and compensation for that risk.
Some common provisions that may be included in a dip loan agreement template include:
– A prohibition on the debtor incurring additional debt or liens without the lender`s consent.
– Restrictions on the debtor`s ability to sell assets or pay certain creditors without the lender`s consent.
– Requirements for the debtor to maintain certain financial ratios or metrics.
– Requirements for the debtor to provide detailed financial reporting to the lender.
– Provisions for the lender to receive a “make-whole” payment if the debtor repays the loan early.
– Provisions for the lender to receive additional compensation if the debtor`s business improves and they are able to repay the loan in full.
In addition to these provisions, the dip loan agreement may also include bankruptcy-specific clauses, such as a “carve-out” for certain administrative expenses that are paid ahead of the dip loan in the bankruptcy priority scheme.
Overall, the dip loan agreement template is a critical document for both debtors and lenders in Chapter 11 bankruptcy cases. By carefully negotiating and crafting the terms of the dip loan agreement, both parties can help ensure a successful bankruptcy process and ultimate repayment of the dip loan.