Experiments in DIP financing in Mexico and Brazil

Author: | Published: 25 Jan 2016

The countries’ struggling debtors have been testing their new restructuring regimes. Paul Hastings’ Joy Gallup explains how debtor-in-possession funding is emerging as a favoured tool

Two years ago, the rewrite of Mexico's restructuring or concurso law took effect. It is part of a series of highly-publicised reforms of Latin America's insolvency laws that aimed to improve the process of reorganising debt-burdened companies, and sought to clarify the process for international investors who are accustomed to more predictable outcomes under US insolvency proceedings.

One of the most welcomed features was clarification of the process for obtaining debtor-in-possession (or DIP) financing with super-priority status. DIP financing is funding for the debtor, typically in the form of secured loans or notes, to provide liquidity to help cover expenses and operations during the restructuring process. It is typically paid back immediately following the debtor's emergence from bankruptcy (as it has the highest priority of...