Corporate and consumer spending has continued to decline since the second half of 2008. As a result, many highly leveraged companies have continued to face severe liquidity constraints as cash flow continues to decline, and borrowing bases for asset-based facilities decrease.
The Impact of the Credit Crisis on DIP Financing
Prior to the global credit pandemic, a company in default or that faced a near-term covenant breach could either obtain relief through waivers and amendments, or refinancings. As the availability of credit shrank, the latter choice was no longer a viable solution. Moreover, a by-product of the frozen credit markets was the unexpected contraction of available debtor-in-possession financing (DIP financing).
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