"Concern that some debtors may not be able to exit have trickled into the market for DIP loans that finance the heavy lifting of Chapter 11 cases and allow companies to fix their balance sheets and operations. 'Right now the dynamics of the market are you can go out and maybe get a DIP loan that is incredibly expensive. But we are seeing more and more that that's not happening,' says Jonathan Henes of Kirkland & Ellis LLP, who represented Solutia among other debtors.
'You go to your incumbent lenders and say I need a loan. They don't want to take more exposure. They say fine but you've got four months to sell the company.'
'Our federal bankruptcy laws are established to promote the goals of having a debtor be able to continue on as a going concern and maximizing value for all stakeholders. To do that companies need liquidity. It's the gas that makes that car run,' says Henes. 'In today's environment, with zero to little liquidity, companies that find themselves in distress and have not planned ahead are in an incredibly risky situation. They are not able to take advantage of the tools that the Bankruptcy Code offers to fix their operations and capital structure.' "
This article appeared in its entirety in the May 16, 2008 edition of The Deal.