Exit Financing
Exit Financing is debt or other committed financing arranged for a debtor's emergence from Chapter 11 to fund plan distributions, repay or refinance DIP and other obligations, and provide liquidity for the post-emergence business.
Exit financing replaces the bankruptcy liquidity framework
DIP financing is designed for a debtor operating under court supervision.
After emergence, the company needs ordinary post-bankruptcy financing that can support working capital, letters of credit, capital expenditures and ongoing operations.
The facility can fund plan distributions
Exit proceeds can be used to repay DIP obligations, fund cash distributions to creditors, pay professional or restructuring costs and provide minimum cash at emergence.
That makes financing availability a common condition precedent to the Effective Date.
Exit debt can include rolled or new-money components
Some facilities convert or roll part of DIP or prepetition debt into the post-emergence capital structure while adding new funded liquidity.
The headline facility size should therefore be separated into actual new cash and debt carried forward.
Confirmation can authorize the documents in advance
Current Chapter 11 plans and confirmation orders authorize Reorganized Debtors to execute exit credit agreements and grant liens without additional corporate or bankruptcy-court approvals specified in ordinary circumstances.
The financing then becomes effective under the plan's closing mechanics.
Exit financing should be tested on both leverage and liquidity
Assume a company emerges with $600 million of exit debt and $120 million of annual EBITDA.
Headline leverage is 5.0×.
The company also has a $100 million revolver, but $70 million is drawn at emergence. Only $30 million remains available before considering letters of credit, minimum-liquidity covenants and borrowing-base limits.
A plan can therefore look acceptable on leverage while leaving very little operating flexibility.
A better exit-financing review tracks:
funded debt + revolver usage + remaining availability + cash on hand + minimum liquidity + cash interest + maturity schedule.
The financing's purpose is not merely to close the Chapter 11 case. It must support a viable business afterward.
Common mistakes
Treating exit financing as the same as DIP financing They serve different stages.
Assuming the entire facility is new cash Roll-up or takeback debt can be included.
Looking only at emergence leverage Unused revolver availability and liquidity covenants can matter just as much.
Example
A reorganized company emerges with a $75 million revolving facility and a $250 million term loan. Part of the proceeds repays DIP borrowings and restructuring expenses, while the remaining availability supports working capital after emergence.
Example
A reorganized company emerges with a $75 million revolving facility and a $250 million term loan. Part of the proceeds repays DIP borrowings and restructuring expenses, while the remaining availability supports working capital after emergence.
Professional note
Exit financing should be evaluated as the opening capital structure of the reorganized company. A plan can reduce old debt materially yet leave the business overleveraged if exit debt, fees and liquidity needs are underestimated.
Related terms
- Debtor-in-Possession (DIP) Financing
Debtor-in-Possession, or DIP, Financing is credit obtained after a bankruptcy filing to fund a debtor's operations and restructuring while the debtor remains in possession of its business under Chapter 11.
- Plan of Reorganization
A Plan of Reorganization is the Chapter 11 plan that sets the classification and treatment of claims and interests and establishes the transactions, distributions, governance and other steps through which the debtor will reorganize or otherwise resolve the bankruptcy case.
- Effective Date
The Effective Date of a Chapter 11 plan is the date specified under the plan when its conditions precedent have been satisfied or waived and the restructuring transactions become effective according to the plan and confirmation order.
Related ROIStreet guides
- What Is the Rule of 55?
The Rule of 55 is an informal name for a federal exception to the 10% additional tax on certain early retirement-plan distributions. It can apply when a worker separates from the employer maintaining a qualified plan in or after the calendar year the worker reaches age 55. This guide explains the age test, eligible plans, IRA differences, taxes, rollovers and special public-safety rules.
- Stocks vs. Bonds: A Practical Comparison
Stocks represent ownership in companies; bonds generally represent lending to an issuer. This comparison explains how the two differ in return sources, volatility, income, maturity, priority, credit risk and liquidity.
- What Is a 401(k) Recordkeeper?
A 401(k) recordkeeper maintains the participant-level ledger: contributions, investments, gains and losses, fees, loans, distributions and account balances. The recordkeeping role is distinct from holding plan assets, writing the plan document or serving as the legal plan administrator, even when one financial company bundles several of those services.
- What Compensation Counts for a 401(k)?
There is no single universal 401(k) compensation number. A plan can use different definitions for deferrals, matching, profit sharing and testing, while statutory definitions govern limits such as Sections 401(a)(17), 414(s) and 415.