The COVID-19 pandemic is doing more than putting our normal daily life on hold, it’s also transforming entire industries. From airlines to restaurants, retail to manufacturing, the COVID-19 pandemic has had a far-reaching effect on businesses, with more than 5,500 declaring Chapter 11 bankruptcy between January and September of 2020.
One of the resources companies use when going through Chapter 11, where reorganization of the company is believed to have a high possibility of success, is debtor-in-possession (DIP) financing. DIP allows a company to secure liquidity that facilitates its plans to reorganize in Chapter 11.
When we think of industries most hurt by the current crisis, the airline industry certainly comes to mind. Many international airlines, including Aeromexico and Avianca, have begun either seeking financing or securing it., Rental car company, Hertz Global, also recently secured DIP financing to help them grapple with a bankruptcy during the pandemic.
Another sector kicked hard by COVID-19 is the restaurant industry. There, we’ve seen California Pizza Kitchen and the Sustainable Restaurant Group, owners of Bamboo Sushi and QuickFish, securing DIP financing.,
There’s a reason so many companies and firms look to DIP financing as they face bankruptcy. In a normal year, DIP financing provides sorely needed capital that can be used to facilitate the underlying company’s reorganization. It provides incoming funds used to pay for supplies, payroll services, insurance, advertising and other ongoing operation expenses throughout the bankruptcy case. Funds provided through DIP are used according to a court-approved financing plan and the loan is overseen by the court.
During the pandemic, DIP has taken on a whole new level of usefulness. COVID-19 has forced a huge number of companies to change how they do business, prompting them to find ways to provide contactless service, socially distant work environments, fast deliveries, and internet ordering. DIP provides these companies with the funds they need to reorganize according to the new rules that COVID-19 imposes, thus positioning them for an even stronger reemergence from bankruptcy.
Sadly, traditional lenders often don’t want to lend to small companies that are experiencing financial difficulties, especially during a pandemic. A logical step under other circumstances might be to have current shareholders loan the company money while it reorganizes, but with DIP financing, the lenders can’t be company insiders, which restricts the company’s opportunities even more.
That’s why bankrupt businesses need to look to alternative lenders to secure mezzanine and asset-based DIP funding to help them weather bankruptcy, a pandemic, and whatever else the future brings.
For more than 18 years, Alexander Chucri and Pravati Capital has been at the forefront of litigation funding in the United States. With decades of legal experience, Pravati's team of expert underwriters, analysts, and executives are driven to exceed expectations when fulfilling bridge capital needs.
Not satisfied with the status quo offered by traditional banking channels, Pravati Capital's specialized solutions ensure lawyers, firms, and commercial litigants can grow their businesses and take advantage of opportunities while waiting for trials and settlements. The company's capital infusion opportunities are dynamic, ﬂexible, and customizable to a borrower's speciﬁc needs. Their skilled team of underwriters, each with memberships in law associations and decades of practice experience, has the legal expertise and aptitude for analysis and evaluation of complex and specialty cases, identifying those with a high probability of success.