What is “DIP” financing and why are people arguing about it?
A key issue in the bankruptcy is Mortgages Ltd.’s request to obtain financing from an outside lender to help it continue operating while it devises a reorganization plan. The money, called “debtor-in-possession” or DIP financing, is intended to help a company that is in bankruptcy pay for business expenses, including payroll, utilities, rent and other costs. The issue of DIP financing has been the source of many arguments in Mortgages Ltd.’s case. Previous efforts the company made to obtain such financing from Southwest Value Partners, a company run by Phoenix Suns majority owner Robert Sarver, were blocked by some borrowers. They thought that the terms of the deal, including the interest rate on the money and the property that Southwest Value Partners was proposing to take as collateral for its loan, were too expensive. Mortgages Ltd. has proposed a new deal to obtain interim financing from a lender called Stratera Portfolio Advisors LLC. Mortgages Ltd. already received court approval
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