Financing in a Prepackaged Bankruptcy

Financing in a Prepackaged Bankruptcy

by George E.B. Maguire and Jasmine Ball

This Emerging Issues Analysis explains how the use of a prepackaged bankruptcy creates special financing problems that must be addressed by the restructuring company. For planning purposes, the restructuring under a prepackaged bankruptcy can be divided into three phases: the period prior to the commencement of the prepackaged bankruptcy, the period once the prepackaged bankruptcy has commenced, and the consummation of the prepackaged plan.

The authors write: The use of a prepackaged bankruptcy creates special financing problems that must be addressed by the restructuring company. For planning purposes, the restructuring under a prepackaged bankruptcy can be divided into three phases.

The first phase is the period prior to the commencement of the prepackaged bankruptcy when the prepackaged plan is negotiated and acceptances are solicited. The problems of maintaining operating liquidity during this period are discussed above.

The company enters the second phase once the prepackaged bankruptcy has commenced. The company may now take advantage of the special inducements provided under section 364 of the Bankruptcy Code to obtain DIP financing to meet its working capital needs during the prepackaged bankruptcy. DIP financing arrangements can be complicated and raise serious issues for and among prepetition creditor groups. Consequently, they should be planned for and negotiated well in advance of the prepackaged bankruptcy.

Access the full version of "Financing in a Prepackaged Bankruptcy" with your lexis.com ID

If you do not have a lexis.com ID, you can purchase the Emerging Issues Analysis content through our Research Value Packages

George E.B. Maguire is a partner with Debevoise & Plimpton LLP in New York City and is a member of the firm's Bankruptcy & Restructuring Group. Mr. Maguire represents debtors and creditors and other parties in workouts and restructurings as well as chapter 11 proceedings. Mr. Maguire is a frequent contributing author to various publications, including the Collier Business Workout Guide. He is a former member of the Association of the Bar of the City of New York's Committee on Bankruptcy and Corporate Reorganization. His representations include Ronald Lauder in the sale of his stake in Central European Media Enterprises to Apax Partners and of Verizon Communications in its acquisition of MCI. Mr. Maguire is a graduate of Princeton University (A.B., 1980), Oxford University (B.A., 1983) and the University of Virginia (J.D., 1986), where he was a member of the Virginia Law Review.

Jasmine Ball is a partner with Debevoise & Plimpton LLP in New York City and is a member of the firm's Bankruptcy & Restructuring Group. Ms. Ball regularly represents debtors, investors, creditors and other parties in distressed mergers and acquisitions, debt and equity financings and refinancings, complex restructurings and chapter 11 proceedings. Her representations include large suppliers to distressed companies in various sectors and Delta Air Lines, Inc. as special aircraft counsel in its chapter 11 proceeding. Ms. Ball is a frequent contributor to various publications and is contributing author to the Collier Business Workout Guide. Ms. Ball is a member of the American Bar Association, the New York State Bar Association and the Association of the Bar of the City of New York and a member of its Committee on Bankruptcy and Corporate Reorganization. Ms. Ball is a graduate of Princeton University (B.S., 1996) and the University of Michigan (J.D., 1999), where she was an Executive Editor of the Michigan Journal of International Law.