Posted in Finance, Accounting and Economics Terms, Total Reads: 387
It is a loan given by a lender to a company which has filed for bankruptcy and the new lender gains priority over the existing debt holders of the company. It is also known as priming loan or Debtor In Possession (DIP) financing, where a business which has filed for Chapter 11 bankruptcy proceedings obtains a loan to assist in the core areas of its business.
A lender may agree to be primed if he feels that the new loan can help the company revive from bankruptcy and improve its financial stability. Existing lenders will have a say in whether the company can go for a priming loan, which will have priority repayment terms over the existing debts of the company.
Examples of priming loans given to companies are Chrysler and General Motors during their bankruptcies in 2009.