When the financial markets shuddered last September following the failure of Lehman Brothers and the near-death experience of AIG, debtor-in-possession financing dried up and lay dormant for months-just as Chapter 11 filings were accelerating. Pressed beyond the edge, companies that under normal circumstances would have been thrown a financing lifeline allowing them to restructure, were forced to liquidate instead. Banks pulled backed back from the market as they focused on cleaning up their balance sheets.
By the middle of this year, however, the DIP market was showing signs of life, though mostly with pre-petition lenders - those already holding debt in the troubled companies - attracted by extraordinary terms. UBS, Citigroup, Goldman Sachs, and Deutsche Bank have returned in force. Private equity funds, too, are taking up some of the slack, mainly because more lucrative targets for their money have evaporated.