Financing
Unsecured Financing
The debtor may incur unsecured debt in the ordinary course of business without court authorization. Such unsecured debt is entitled to administrative expense status under section 503(b)(1) which must be paid in full upon confirmation of the chapter 11 plan. Administrative expense claim rank junior to "superpriority" administrative expense claims and to certain administrative expense claims of secured creditors.
The court may authorize the debtor to incur unsecured debt "outside of the ordinary course of business" which is entitled to administrative expense status under section 503(b)(1). This unsecured debt must be actually necessary to preserve the debtor's business.
Secured Financing
The court may authorize the debtor to incur debt that is secured by property of the estate. Secured financing is generally only allowed if the debtor is unable to obtain unsecured credit.
Superpriority Administrative Expense Status
The court may authorize the debtor to incur debt that entitled to a "superpriority" adminstrative expense status. Superpriority financing is available only if the debtor is unable to obtain unsecured credit in the ordinary course of business or outside of the ordinary course of business. Superpriority administrative expense status means that the lender is entitled to seniority over certain all other administrative expense claims. But even with superpriority administrative expense status, a lender may not be repaid unless the debtor has sufficient unencumbered assets. Often such a lender will require that the financing documents include negative covenants precluding the debtor from placing liens on its unencumbered assets.
Priming Lien
The debtor may incur unsecured debt in the ordinary course of business without court authorization. Such unsecured debt is entitled to administrative expense status under section 503(b)(1) which must be paid in full upon confirmation of the chapter 11 plan. Administrative expense claim rank junior to "superpriority" administrative expense claims and to certain administrative expense claims of secured creditors.
The court may authorize the debtor to incur unsecured debt "outside of the ordinary course of business" which is entitled to administrative expense status under section 503(b)(1). This unsecured debt must be actually necessary to preserve the debtor's business.
Secured Financing
The court may authorize the debtor to incur debt that is secured by property of the estate. Secured financing is generally only allowed if the debtor is unable to obtain unsecured credit.
Superpriority Administrative Expense Status
The court may authorize the debtor to incur debt that entitled to a "superpriority" adminstrative expense status. Superpriority financing is available only if the debtor is unable to obtain unsecured credit in the ordinary course of business or outside of the ordinary course of business. Superpriority administrative expense status means that the lender is entitled to seniority over certain all other administrative expense claims. But even with superpriority administrative expense status, a lender may not be repaid unless the debtor has sufficient unencumbered assets. Often such a lender will require that the financing documents include negative covenants precluding the debtor from placing liens on its unencumbered assets.
Priming Lien