PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 450 Park Avenue New York, New York 10022
INTERNAL MEMORANDUM
TO: Gabrielle Moss, Lead Associate, Bankruptcy & Restructuring Nathaniel Bower, Responsible Partner, Bankruptcy & Restructuring
FROM: Amy Chesterton, Working Associate, Bankruptcy & Restructuring
DATE: May 17, 2025
RE: Section 364(d) Priming Lien Standards and Adequate Protection Analysis — Greenfield Agricultural Partners LLC, Case No. 25-01147 (N.D. Iowa, Cedar Rapids Division)
CLIENT/MATTER NO.: 1020-00002
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is prepared solely for internal use in connection with the representation of Greenfield Agricultural Partners LLC in the above-referenced Chapter 11 case. Do not distribute outside the engagement team without prior approval.
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I. Executive Summary
This memorandum analyzes the legal standards that must be satisfied to obtain court approval of priming liens under 11 U.S.C. § 364(d) in connection with the proposed $175,000,000 senior secured superpriority debtor-in-possession revolving credit facility (the "DIP Facility") to be provided to Greenfield Agricultural Partners LLC (the "Debtor" or "Greenfield") by a syndicate led by Ironclad Capital Partners LP, as Administrative Agent, and including Ridgeline Opportunity Fund III LP and Bramblewood Credit Advisors LLC as co-lenders. The DIP Facility will prime existing first-priority liens held by Prairie State Bank, N.A., as administrative agent under both the First Lien Term Loan ($310,000,000 outstanding) and the ABL Revolver ($72,300,000 drawn of $95,000,000 committed, with Hawthorn National Bank and Northland Savings Bank, F.S.B. as participating lenders).
The matter is before the United States Bankruptcy Court for the Northern District of Iowa (Cedar Rapids Division), assigned to the Honorable Margaret R. Dunleavy. The Debtor filed its voluntary Chapter 11 petition on May 15, 2025 (the "Petition Date"), and the Emergency Motion for Interim and Final Orders Authorizing DIP Financing is targeted for hearing on May 22, 2025 (Interim Hearing) and June 19, 2025 (Final Hearing).
Key Conclusion. Based on the analysis set forth in this memorandum, it is my assessment that the Debtor can satisfy the requirements of § 364(d) through a combination of: (a) Prairie State Bank, N.A.'s conditional consent to priming, which is expected to be memorialized in a formal consent letter by May 20, 2025; (b) a robust adequate protection package consisting of replacement liens, § 507(b) superpriority claims, current-pay interest at the non-default contract rate, and monthly financial reporting; and (c) the demonstrated going-concern preservation rationale underpinning the DIP Facility, which is itself critical to maintaining the value of the collateral securing Prairie State Bank's pre-petition liens. Even in the absence of formal consent — a contingency for which we should be prepared — the Debtor has strong arguments on the merits under the "adequate protection" prong of § 364(d)(1)(B), supported by the comprehensive adequate protection package and the market-check evidence establishing the unavailability of non-priming credit.
The pre-petition secured debt being primed consists of the $310,000,000 First Lien Term Loan and the $72,300,000 drawn ABL Revolver (of $95,000,000 committed), totaling $382,300,000 in first-priority secured claims. The proposed adequate protection package, the preservation-of-going-concern argument, and the conditional consent of Prairie State Bank collectively present a compelling case for approval under applicable Eighth Circuit and bankruptcy court precedent. This memorandum addresses the legal framework, applies it to the facts of the Greenfield case, identifies potential objections and risk factors, and recommends specific action items for the engagement team.
II. Factual Background
A. The Debtor and the Chapter 11 Case
Greenfield Agricultural Partners LLC ("Greenfield" or the "Debtor") is an Iowa limited liability company headquartered at 1400 Prairie Ridge Drive, Cedar Falls, Iowa 50613 (EIN 42-8837291). Greenfield is a vertically integrated agricultural chemicals manufacturer and distributor, with product lines spanning herbicides, fungicides, adjuvants, and seed treatments. The company's operations are conducted through a network of three manufacturing plants and fourteen regional distribution centers, supported by a dedicated research and development facility.
Greenfield's manufacturing footprint consists of the following facilities:
• Cedar Falls, Iowa (headquarters and primary manufacturing facility), located at 1400 Prairie Ridge Drive, Cedar Falls, IA 50613;
• Decatur, Illinois (secondary manufacturing and formulation facility), located at 2200 Industrial Boulevard, Decatur, IL 62521; and
• Jonesboro, Arkansas (blending and packaging facility), located at 815 County Road 740, Jonesboro, AR 72401.
In addition, Greenfield operates fourteen regional distribution centers across the Midwest and Mid-South regions, serving as the primary logistical hubs for the company's distribution network. The company also maintains a 640-acre research and development farm in Ames, Iowa (4500 University Boulevard, Ames, IA 50010), which serves as the testing and development site for new crop protection formulations. As of the Petition Date, Greenfield employed approximately 2,300 individuals across its operations.
Greenfield filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on May 15, 2025, initiating Case No. 25-01147 in the Northern District of Iowa, Cedar Rapids Division. The case was assigned to the Honorable Margaret R. Dunleavy.
The Debtor's financial distress was precipitated by a confluence of adverse factors: (i) severe drought conditions during the 2024 growing season, which significantly depressed demand for the Debtor's herbicide and fungicide product lines as farmers reduced crop protection expenditures in response to diminished crop yields and planting acreage; (ii) depressed commodity pricing across key agricultural input markets, which compressed the Debtor's margins and reduced the pricing power of its distribution network; and (iii) delayed re-registration by the United States Environmental Protection Agency of the Debtor's flagship herbicide product, ClearGuard XR, which had been pending since the second quarter of 2024 and resulted in the suspension of new ClearGuard XR sales in several key states pending regulatory resolution. The cumulative effect of these factors was a sharp decline in revenue, a deterioration of EBITDA, and a liquidity crisis that ultimately compelled the Chapter 11 filing.
B. Pre-Petition Capital Structure
The Debtor's pre-petition capital structure, as of the Petition Date, consists of the following obligations:
First Lien Term Loan. Greenfield is the borrower under a first lien term loan facility (the "First Lien Term Loan") with Prairie State Bank, N.A. serving as administrative agent. The First Lien Term Loan was originated in November 2021 with an original principal amount that has been paid down to $310,000,000 outstanding as of the Petition Date. The facility bears interest at a floating rate of SOFR plus 450 basis points, with a scheduled maturity date of November 2026. The First Lien Term Loan is secured by a first-priority lien on substantially all of the Debtor's assets, excluding certain collateral allocated to the ABL Revolver under the split-collateral structure described below.
ABL Revolver. Greenfield is also the borrower under an asset-based revolving credit facility (the "ABL Revolver") with Prairie State Bank, N.A. as administrative agent and Hawthorn National Bank and Northland Savings Bank, F.S.B. as participating lenders. The ABL Revolver was originated in March 2023 with aggregate commitments of $95,000,000, of which $72,300,000 was drawn as of the Petition Date. The facility bears interest at a floating rate of SOFR plus 275 basis points, with a scheduled maturity date of May 2026. The ABL Revolver is secured by a first-priority lien on the Debtor's receivables and inventory, pursuant to a split-collateral intercreditor arrangement with the First Lien Term Loan. Under this arrangement, the ABL Revolver lenders hold first-priority liens on receivables and inventory, while the First Lien Term Loan lenders hold first-priority liens on all other collateral (real property, equipment, intellectual property, general intangibles, and other assets). Each lender group holds a subordinate lien on the other group's priority collateral.
Senior Unsecured Notes. Greenfield is the issuer of $84,200,000 in aggregate principal amount of Senior Unsecured Notes (the "Unsecured Notes"), issued in March 2024 at a fixed interest rate of 9.50% per annum, with a maturity date of March 2027. Meridian Trust Company serves as indenture trustee. The Unsecured Notes are unsecured obligations and do not benefit from any lien on the Debtor's assets.
Trade and Other Unsecured Claims. The Debtor estimates that it has approximately $22,700,000 in trade payables and other general unsecured claims as of the Petition Date.
Total Debt. The Debtor's total funded indebtedness and unsecured claims aggregate approximately $489,200,000 as of the Petition Date.
Pre-Petition Defaults. The Debtor was in default under multiple credit instruments prior to the Petition Date. Specifically: (i) the Debtor missed the semi-annual interest payment of $3,681,250 due on the Senior Unsecured Notes on March 15, 2025, and the applicable grace period expired on April 14, 2025, constituting an event of default under the indenture; (ii) the Debtor breached the Total Net Leverage Ratio covenant under the First Lien Term Loan as of December 31, 2024, with an actual ratio of 9.82x compared to the maximum permitted ratio of 6.50x (calculated as total net debt of $370,500,000 — i.e., $310,000,000 First Lien Term Loan plus $72,300,000 ABL Revolver, less $11,800,000 cash on hand — divided by LTM Adjusted EBITDA of $37,700,000, as computed under the credit agreement definition); and (iii) a forbearance agreement was executed on January 31, 2025, pursuant to which the First Lien Term Loan lenders agreed to forbear from exercising remedies during the forbearance period, which expired on May 1, 2025, without renewal. The expiration of the forbearance agreement and the continued financial deterioration precipitated the Chapter 11 filing.
C. FY 2024 Financial Summary
For the fiscal year ended December 31, 2024, the Debtor reported the following financial results:
• Revenue: $612,400,000
• EBITDA: $38,700,000
• LTM Adjusted EBITDA (per credit agreement definition): $37,700,000
• Cash on Hand at Petition Date: $11,800,000
• Estimated Enterprise Value (mid-point): $280,000,000 to $340,000,000, with a mid-point of approximately $310,000,000
The decline in EBITDA from historical levels — and the resulting leverage ratio breach — was driven primarily by the combination of drought-related demand weakness, commodity price compression, and the ClearGuard XR regulatory delay. These factors are discussed more fully in the Declaration of Patricia Langford, Chief Financial Officer, to be filed in support of the Emergency Motion.
D. The Proposed DIP Facility
The proposed DIP Facility is structured as a $175,000,000 senior secured superpriority revolving credit facility, with the following material terms:
Lender Commitments:
Administrative Agent: Ironclad Capital Partners LP.
Collateral Agent: Meridian Trust Company.
Interest Rate: SOFR plus 850 basis points, with a SOFR floor of 4.00%, resulting in an effective minimum all-in interest rate of 12.50%. Upon the occurrence and during the continuance of an Event of Default, the interest rate increases by an additional 200 basis points (to SOFR plus 1,050 basis points).
Fees: A closing fee of 2.00% of the total commitment ($3,500,000), payable upon entry of the Interim DIP Order; an unused line fee of 0.50% per annum on undrawn commitments, payable monthly in arrears; and an exit fee of 1.00% of the total commitment ($1,750,000), payable upon the termination of the DIP Facility.
Draw Schedule: An interim draw of $80,000,000 upon entry of the Interim DIP Order, with the remaining $95,000,000 available upon entry of the Final DIP Order.
Maturity: The earlier of: (a) twelve months from the Petition Date (May 15, 2026); (b) the effective date of a confirmed plan of reorganization; (c) the consummation of a sale of substantially all assets under § 363 of the Bankruptcy Code; or (d) the occurrence of an Event of Default (subject to applicable cure periods).
Financial Covenants: The DIP Facility includes the following financial covenants: (i) minimum liquidity (defined as unrestricted cash plus available undrawn commitments under the DIP Facility) of $15,000,000 at all times; (ii) maximum cumulative variance to the DIP Budget of 15% on a rolling four-week basis, tested weekly; and (iii) minimum EBITDA of negative $5,000,000 for any rolling four-week period.
DIP Budget: The 13-week DIP Budget covers the period from May 15, 2025 through August 13, 2025. The budget projects ending cash of $56,750,000 after the initial $80,000,000 interim draw, reflecting the Debtor's anticipated operating receipts, operating disbursements, restructuring professional fees, debt service and adequate protection payments, and capital expenditures over the 13-week period.
Case Milestones: The DIP Facility includes the following milestones: (i) entry of the Interim DIP Order by May 22, 2025; (ii) entry of the Final DIP Order by June 19, 2025; (iii) filing of a plan of reorganization or a motion to sell substantially all assets under § 363 by October 12, 2025; and (iv) confirmation of a plan or closing of a § 363 sale by February 8, 2026.
Security and Priority Structure. The DIP Facility's security and priority structure — which is the central subject of this memorandum — consists of the following elements: (i) a superpriority administrative expense claim under § 364(c)(1) of the Bankruptcy Code, senior to all other administrative expense claims (including any § 507(b) claims); (ii) a first-priority priming lien on all pre-petition collateral under § 364(d), senior to the existing first-priority liens of Prairie State Bank, N.A. under both the First Lien Term Loan and the ABL Revolver; and (iii) a first-priority lien on all previously unencumbered assets under § 364(c)(2) and a junior lien on any encumbered property not subject to priming under § 364(c)(3).
Professional Fee Carve-Out. The DIP Facility provides for a carve-out from the DIP liens and superpriority claims as follows: (i) prior to the occurrence of a Carve-Out Trigger Notice (as defined in the DIP credit agreement), all accrued but unpaid professional fees and expenses of estate professionals, without cap; and (ii) following the delivery of a Carve-Out Trigger Notice, $2,500,000 for professional fees and expenses of estate professionals and $500,000 for fees payable to the United States Trustee under 28 U.S.C. § 1930, for an aggregate post-trigger carve-out of $3,000,000.
ABL Roll-Up. As a condition to obtaining the support of the ABL Revolver lender group, the DIP Facility provides for a roll-up of $20,000,000 of pre-petition ABL Revolver obligations into the DIP Facility. The roll-up will be effectuated on a dollar-for-dollar basis — upon the funding of the initial $80,000,000 interim draw, $20,000,000 of the proceeds will be used to pay down pre-petition ABL obligations, which will simultaneously be deemed re-advanced under the DIP Facility. The practical effect of the roll-up is to convert $20,000,000 of pre-petition secured claims into post-petition DIP obligations with superpriority status and priming liens.
E. Prairie State Bank's Conditional Consent
Prairie State Bank, N.A. — acting through Thomas Whitaker, Senior Vice President of the Loan Workout Group, and Angela Reeves, Vice President of Loan Administration — has indicated its conditional consent to the priming of its first-priority liens by the DIP Facility. This conditional consent is subject to the entry of Interim and Final DIP Orders that incorporate the agreed adequate protection terms, as set forth in the Adequate Protection Stipulation currently being negotiated between the parties. Prairie State Bank's counsel at Harmon & Keach LLP (Richard Yeung, Partner, and Laura Brennan, Associate) has been actively engaged in the negotiation of the adequate protection terms.
A formal consent letter from Prairie State Bank is expected to be delivered by May 20, 2025, which is two days before the target Interim Hearing date of May 22, 2025. The consent letter, once received, will be filed as an exhibit to the Emergency Motion or, if received after the filing of the motion, will be presented to the Court at the Interim Hearing.
With respect to the ABL Revolver specifically, the participating lenders — Hawthorn National Bank and Northland Savings Bank, F.S.B. — have indicated their support for the DIP Facility, contingent upon the $20,000,000 ABL roll-up described above. Prairie State Bank, as administrative agent under the ABL Revolver, is authorized under the terms of the ABL credit agreement to deliver consent on behalf of the ABL lender group, and it is expected that the consent letter will cover both the First Lien Term Loan and the ABL Revolver.
III. Legal Framework — Section 364 of the Bankruptcy Code
A. Statutory Text of 11 U.S.C. § 364
Section 364 of the Bankruptcy Code establishes a graduated framework governing the incurrence of credit by a debtor-in-possession during the pendency of a Chapter 11 case. The framework is designed to encourage post-petition lending by providing lenders with escalating levels of protection, while simultaneously safeguarding the interests of existing stakeholders. The relevant provisions are set forth below.
Section 364(a): Ordinary Course Unsecured Credit. Section 364(a) provides that a debtor-in-possession, or a trustee, "authorized to operate the business of the debtor under section 1108 of this title, section 1203 of this title, section 1204 of this title, or section 1304 of this title, may obtain unsecured credit and incur unsecured debt in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense." 11 U.S.C. § 364(a). This provision permits the debtor to obtain routine unsecured credit — such as trade credit from vendors — without prior court approval. Such credit is allowable as an administrative expense under § 503(b)(1).
Section 364(b): Court-Approved Unsecured Credit. Section 364(b) provides that "[t]he court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense." 11 U.S.C. § 364(b). This provision authorizes the court to approve unsecured credit outside the ordinary course of business, such as a significant unsecured loan, after notice and a hearing. Like § 364(a) credit, § 364(b) credit is allowable as an administrative expense but requires judicial approval.
Section 364(c): Credit with Priority or Lien on Unencumbered Property. Section 364(c) provides that "[i]f the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt" with one or more of the following enhanced protections:
(1) "with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title" — i.e., a superpriority administrative expense claim;
(2) "secured by a lien on property of the estate that is not otherwise subject to a lien" — i.e., a lien on unencumbered property; or
(3) "secured by a junior lien on property of the estate that is subject to a lien" — i.e., a junior lien on already-encumbered property.
11 U.S.C. § 364(c). To invoke § 364(c), the debtor must first demonstrate that it is "unable to obtain unsecured credit allowable under section 503(b)(1)." This is a threshold showing that the lower levels of protection provided by § 364(a) and (b) are insufficient to attract the needed financing. The three tiers of protection under § 364(c) may be used individually or in combination.
Section 364(d): Credit Secured by Senior or Equal Lien on Encumbered Property (Priming Liens). Section 364(d) — the provision most directly at issue in this memorandum — provides as follows:
"(1) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if —
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted."
11 U.S.C. § 364(d)(1). This provision authorizes the court to approve priming liens — liens that are senior to, or pari passu with, existing liens on the debtor's property — subject to the satisfaction of two conditions: (i) the debtor's inability to obtain credit on less burdensome terms (the "necessity" test), and (ii) adequate protection of the interests of existing lien holders. These two prongs are discussed in detail in Section IV of this memorandum.
Subsection (d)(2) further provides that "[i]n any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection." 11 U.S.C. § 364(d)(2). The allocation of the burden of proof is significant: it is the debtor — not the existing lien holder — that must affirmatively demonstrate that adequate protection exists.
Section 364(e): Protection of Good-Faith Lenders on Appeal. Section 364(e) provides that "[t]he reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal." 11 U.S.C. § 364(e). This provision insulates good-faith DIP lenders from the consequences of appellate reversal, except where the authorizing order has been stayed pending appeal. Section 364(e) is a critical provision in the DIP lending market, as it provides DIP lenders with the certainty that their liens and claims will not be unwound on appeal — a certainty that is essential to the willingness of lenders to extend credit in the inherently uncertain environment of a bankruptcy case.
B. Interplay with § 361 (Adequate Protection) and § 507(b) (Superpriority for Inadequate Protection)
The adequate protection requirement of § 364(d)(1)(B) must be understood in conjunction with two companion provisions: § 361, which defines the permissible forms of adequate protection, and § 507(b), which provides a remedial mechanism where adequate protection proves insufficient.
Section 361: Adequate Protection Methods. Section 361 of the Bankruptcy Code provides that adequate protection of an interest of an entity in property may be provided by one or more of the following methods:
(1) requiring the debtor to make periodic cash payments to the extent that the stay under § 362, use, sale, or lease under § 363, or grant of a lien under § 364 results in a decrease in the value of such entity's interest in such property;
(2) providing an additional or replacement lien to the extent of any decrease in value; or
(3) granting such other relief, other than entitling such entity to compensation allowed under § 503(b)(1), as will result in the realization by such entity of the "indubitable equivalent" of such entity's interest in such property.
11 U.S.C. § 361. The list of adequate protection methods is not exclusive — courts retain discretion to fashion adequate protection packages tailored to the circumstances of the case, provided that the package affords the protected party the "indubitable equivalent" of its interest.
Section 507(b): Superpriority for Inadequate Protection. Section 507(b) provides that if adequate protection granted to an entity under § 362, 363, or 364 proves insufficient, the entity receives a superpriority administrative expense claim — senior to all other administrative expense claims under § 507(a)(2), except those granted superpriority under § 364(c)(1). This provision serves as a "backstop" for secured creditors whose interests are primed: even if the replacement liens and other adequate protection measures prove insufficient to fully protect the secured creditor's interest, the § 507(b) claim provides an additional layer of protection.
Interplay Between § 364(c)(1) and § 507(b). It is important to note the structural interplay between the DIP Facility's § 364(c)(1) superpriority claim and the pre-petition lenders' § 507(b) claim. Under the proposed DIP Facility, the DIP lenders' § 364(c)(1) superpriority claim is senior to the pre-petition lenders' § 507(b) claim. This is the standard market structure for DIP financings — the DIP lenders, who are providing new money to fund the estate's operations, receive the senior superpriority position, while the pre-petition lenders' § 507(b) backstop claim is subordinate to the DIP superpriority claim but senior to all other administrative expense claims. This relative priority is reflected in both the proposed DIP credit agreement and the Adequate Protection Stipulation.
IV. Two-Prong Test Under Section 364(d)(1)
A. Prong One: Inability to Obtain Credit Otherwise (§ 364(d)(1)(A))
1. Legal Standard
The first prong of § 364(d)(1) requires the debtor to demonstrate that it was "unable to obtain such credit otherwise" — that is, unable to obtain the necessary post-petition financing on terms less burdensome to the estate and its existing stakeholders than the proposed priming structure. Specifically, the debtor must show that it was unable to obtain credit: (i) as an administrative expense under § 503(b)(1) (i.e., unsecured credit under § 364(a) or (b)); (ii) with priority over administrative expenses under § 364(c)(1); (iii) secured by a lien on unencumbered property under § 364(c)(2); or (iv) secured by a junior lien on encumbered property under § 364(c)(3).
The standard does not require the debtor to demonstrate that it canvassed every conceivable lending source in the market. Rather, courts have consistently held that the debtor must show that it made "reasonable efforts" to obtain financing on more favorable terms and was unable to do so. See In re Ames Dep't Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (the debtor need not "seek credit from every possible lender before concluding that it cannot obtain unsecured credit"); In re Aqua Assocs., 123 B.R. 192, 196 (Bankr. E.D. Pa. 1991) (holding that the "reasonable efforts" standard requires the debtor to demonstrate that it "approached potential financing sources and that those sources were unwilling to extend credit" on less onerous terms); In re Snowshoe Co., 789 F.2d 1085, 1088 (4th Cir. 1986) (affirming the bankruptcy court's finding that the debtor satisfied the "unable to obtain credit otherwise" standard based on evidence that "multiple sources were approached and none were willing to extend credit on an unsecured or junior lien basis").
The standard is satisfied if the debtor demonstrates that financing on a non-priming basis was not available on terms that were acceptable to the DIP lenders or reasonably sufficient to meet the debtor's liquidity needs. The inquiry is practical and context-specific: a court will consider the debtor's actual liquidity needs, the state of the collateral, the extent to which the debtor's assets are already encumbered, and the terms on which prospective lenders were willing to provide financing. Where substantially all of the debtor's assets are encumbered by existing first-priority liens, the inability to attract non-priming financing is essentially self-evident, as there is no meaningful collateral pool available to support a § 364(c)(2) lien or sufficient subordination capacity to support a § 364(c)(3) junior lien of the magnitude required.
2. Application to Greenfield
The Debtor engaged Claridge Advisory Group LLC ("Claridge") as its restructuring investment banker to, among other things, conduct a market-check process to identify and solicit potential DIP lenders. The engagement was led by Nolan Ashworth (engagement lead) and Rebecca Liu (Director). Claridge's marketing process, which was conducted over a period of approximately four weeks prior to the Petition Date, involved outreach to multiple institutional lenders and alternative credit providers with established DIP lending platforms.
A declaration of Nolan Ashworth (the "Ashworth Declaration"), to be filed in support of the Emergency Motion, will attest to the scope and results of the marketing process. The Ashworth Declaration is expected to confirm the following critical facts:
(a) No lender was willing to provide financing to the Debtor on an unsecured basis, whether as an administrative expense under § 364(a) or (b) or with superpriority under § 364(c)(1), given the Debtor's pre-petition financial condition, the magnitude of its existing secured indebtedness, and the uncertainty surrounding the ClearGuard XR regulatory matter.
(b) No lender was willing to provide financing secured solely by a lien on unencumbered property under § 364(c)(2), because substantially all of the Debtor's assets are encumbered by first-priority liens held by Prairie State Bank under either the First Lien Term Loan (covering real property, equipment, intellectual property, and general intangibles) or the ABL Revolver (covering receivables and inventory). The split-collateral structure between the two pre-petition facilities leaves virtually no meaningful unencumbered collateral available to support a DIP facility of the required size.
(c) No lender was willing to provide financing secured solely by junior liens on encumbered property under § 364(c)(3), because the existing first-priority liens already substantially exceed the estimated liquidation value of the collateral, leaving no meaningful junior lien position available to a DIP lender.
(d) The only financing proposals received during the marketing process required priming liens under § 364(d). In addition to the proposal from the Ironclad-led syndicate that forms the basis of the proposed DIP Facility, the Debtor received an alternative standalone proposal from Ridgeline Opportunity Fund III LP for a $125,000,000 DIP facility at SOFR plus 900 basis points with more restrictive case milestones. This alternative proposal also required priming liens on all pre-petition collateral. The existence of the Ridgeline alternative proposal further corroborates the conclusion that no non-priming credit was available in the market.
The factual record is compelling. With virtually no unencumbered assets, the Debtor simply cannot offer a sufficient collateral package to support a $175,000,000 facility on a § 364(c)(2) or § 364(c)(3) basis. The fully encumbered nature of the collateral is itself the strongest evidence that priming is necessary. Moreover, the Debtor's acute liquidity needs — cash on hand of only $11,800,000 and projected negative operating cash flow of $5,900,000 during Weeks 1 through 4 of the DIP Budget — underscore the urgency of the DIP Facility and the impracticability of pursuing less burdensome alternatives that are simply not available in the market.
Recommendation. Prong one of § 364(d)(1) is satisfied. The evidentiary basis for this conclusion will be provided by the Declaration of Nolan Ashworth (attesting to the marketing process and the unavailability of non-priming credit) and the Declaration of Patricia Langford, Chief Financial Officer (attesting to the Debtor's financial condition, liquidity crisis, and urgent need for DIP financing). Both declarations should be finalized and filed with the Emergency Motion.
B. Prong Two: Adequate Protection of Existing Lien Holders (§ 364(d)(1)(B))
1. Legal Standard
The second prong of § 364(d)(1) requires the debtor to demonstrate that "there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted." 11 U.S.C. § 364(d)(1)(B). The debtor bears the burden of proof on this issue. See 11 U.S.C. § 364(d)(2).
Courts analyze adequate protection under the three statutory methods set forth in § 361: (i) periodic cash payments, to the extent that the priming results in a decrease in the value of the secured creditor's interest; (ii) additional or replacement liens, to the extent of any decrease in value; and (iii) other relief resulting in the "indubitable equivalent" of the secured creditor's interest. These methods may be combined, and courts retain broad discretion to fashion adequate protection packages tailored to the circumstances of the case.
The Equity Cushion Concept. The concept of the "equity cushion" is central to the adequate protection analysis in § 364(d) cases. An equity cushion exists where the value of the collateral exceeds the sum of: (i) the pre-petition secured debt, and (ii) the proposed DIP debt. Where an equity cushion exists, the existing secured creditor's interest is protected because, even after the imposition of the priming lien, the value of the collateral is sufficient to satisfy both the DIP claims and the pre-petition secured claims. The size of the equity cushion required to constitute adequate protection varies by jurisdiction and by the specific facts of the case. Courts have generally held that an equity cushion of 20% or greater is presumptively adequate, while a cushion of less than 10% is likely insufficient standing alone. See, e.g., In re Indian Palms Assocs., Ltd., 61 F.3d 197, 207 (3d Cir. 1995) (discussing equity cushion thresholds); In re Mosello, 195 B.R. 277, 289 (Bankr. S.D.N.Y. 1996) (similar).
Going-Concern Value Preservation. Courts have also recognized that the DIP financing itself may constitute a form of adequate protection, to the extent that the DIP proceeds are used to fund operations that preserve or enhance the going-concern value of the collateral. The rationale is that, without DIP financing, the debtor's operations would cease, the collateral would deteriorate, and the existing secured creditor's interest would be diminished far more severely than it would be by the imposition of priming liens that fund value-preserving operations. This argument is particularly strong where the debtor's business is a going concern with significant value above liquidation value, and where the DIP financing is essential to maintaining that going-concern premium.
Effect of Consent. The consent of the existing lien holder, while not technically dispositive of the adequate protection inquiry, is highly relevant and effectively moots the § 364(d)(1)(B) analysis. Where the existing lien holder consents to priming — either explicitly through a formal agreement or implicitly through failure to object after receiving notice — courts have generally treated the consent as satisfying the adequate protection prong without further inquiry into the sufficiency of the protection offered. See In re YL West 87th Holdings I LLC, 423 B.R. 421, 432 (Bankr. S.D.N.Y. 2010) (consent of existing lien holder "effectively moots any inquiry into adequate protection under § 364(d)(1)(B)"); In re Lyondell Chemical Co., Case No. 09-10023 (REG) (Bankr. S.D.N.Y. Jan. 14, 2009) (approving priming DIP facility where prepetition lender consented subject to agreed adequate protection terms). The rationale is straightforward: the existing lien holder is in the best position to evaluate whether its interest is adequately protected, and its voluntary consent to priming reflects its own assessment that the proposed adequate protection package is sufficient.
2. Application to Greenfield — Proposed Adequate Protection Package
The Debtor proposes a four-part adequate protection package in favor of Prairie State Bank, N.A., in its capacity as pre-petition first lien agent under both the First Lien Term Loan and the ABL Revolver. Each element of the package is described below.
(a) Replacement Liens on DIP Collateral
Prairie State Bank will receive replacement liens on all DIP collateral — that is, on all assets that are subject to the DIP liens, including all pre-petition collateral and any previously unencumbered assets on which the DIP lenders receive a first-priority lien under § 364(c)(2). The replacement liens will be junior only to: (i) the DIP liens, and (ii) the professional fee carve-out. This element of the adequate protection package ensures that Prairie State Bank retains a lien interest in all assets securing its pre-petition claims. While Prairie State Bank's relative priority drops from first to second position on pre-petition collateral, the lien itself is preserved and attaches to the same — and in certain respects broader — collateral pool. With respect to any previously unencumbered assets (such as certain intellectual property, the R&D farm in Ames, Iowa, or assets acquired post-petition), the replacement lien provides Prairie State Bank with a new lien that it did not previously hold, enhancing the overall collateral coverage of its pre-petition claims.
(b) Superpriority Administrative Expense Claim Under § 507(b)
Prairie State Bank will receive a § 507(b) superpriority administrative expense claim, junior only to: (i) the DIP Facility's § 364(c)(1) superpriority claim, and (ii) the professional fee carve-out. The § 507(b) claim provides a critical "backstop" in the event that the replacement liens prove insufficient to fully protect Prairie State Bank's interest — in such a scenario, Prairie State Bank would hold a superpriority administrative expense claim that is senior to all other administrative expense claims (other than the DIP superpriority claim). While the § 507(b) claim is junior to the DIP superpriority claim, it provides meaningful protection in a liquidation scenario where administrative expense claims may represent a significant portion of the distributable estate.
(c) Current-Pay Interest at the Non-Default Contract Rate
Interest on the First Lien Term Loan at the non-default contract rate of SOFR plus 450 basis points, and on the drawn ABL Revolver at the non-default contract rate of SOFR plus 275 basis points, will continue to accrue and be paid currently during the Chapter 11 case as adequate protection payments. The payment of current-pay interest addresses the time-value-of-money component of adequate protection — it ensures that Prairie State Bank's economic position does not erode due to the passage of time during the pendency of the case.
The DIP Budget allocates $11,050,000 to debt service and adequate protection payments over the 13-week budget period, distributed as follows:
These amounts include current-pay interest on both the First Lien Term Loan and the drawn ABL Revolver. The DIP Budget demonstrates that the Debtor has the ability to fund these adequate protection payments from operating receipts and DIP proceeds, and that the payments are incorporated into the overall cash flow projections approved by the DIP lenders.
(d) Monthly Reporting Package
Prairie State Bank will receive a monthly financial reporting package, including: (i) variance reports comparing actual results to the DIP Budget; (ii) updated collateral schedules reflecting changes in the composition and value of the collateral pool (including receivables aging, inventory levels, and equipment status); and (iii) other operational and financial information reasonably requested by Prairie State Bank. The reporting package provides Prairie State Bank with visibility into the Debtor's operations and financial condition, enabling it to monitor collateral value on an ongoing basis and to raise concerns with the Court if it believes that adequate protection is being eroded.
3. Equity Cushion Analysis
The equity cushion analysis requires a comparison of the estimated value of the collateral against the total secured claims (pre-petition and DIP) that the collateral must support.
Valuation. The Debtor's estimated enterprise value, based on preliminary management estimates, ranges from $280,000,000 to $340,000,000, with a mid-point of approximately $310,000,000. The Debtor has engaged Bellwether Valuation Services Inc. (Gregory Pineda, Senior Managing Director) to conduct a comprehensive appraisal of the Debtor's real property, equipment, inventory, and intellectual property. Preliminary indications from Bellwether suggest that the orderly liquidation value of the collateral supports coverage of the pre-petition secured claims, though the full appraisal is not expected to be complete before the Interim Hearing. We are seeking to obtain preliminary valuation indications from Bellwether in advance of the May 22 hearing to support the equity cushion arguments.
Secured Claims Analysis.
On an interim basis (using the $80,000,000 interim draw), total secured claims would be $462,300,000, compared to a mid-point enterprise value of approximately $310,000,000. On a fully drawn basis, total secured claims would be $557,300,000. Under either scenario, total secured claims significantly exceed the estimated enterprise value, and there is no positive equity cushion on a pure enterprise value basis.
Mitigating Factors. The absence of a strict equity cushion does not preclude a finding of adequate protection. Courts have approved priming liens in numerous large Chapter 11 cases where the equity cushion was thin or nonexistent, based on several considerations that are directly applicable here:
First, the priming liens relate to the DIP Facility, which itself funds operations that preserve and potentially enhance the going-concern value of the collateral. Without DIP financing, the Debtor would be forced to cease operations within weeks — the Debtor's $11,800,000 cash on hand would be depleted by negative operating cash flow of $5,900,000 in Weeks 1 through 4 alone. A cessation of operations would trigger a liquidation scenario in which the collateral would be sold on a piecemeal basis at fire-sale prices, resulting in a far greater diminution of Prairie State Bank's interest than the imposition of priming liens that fund operations designed to preserve value. See In re Lyondell Chemical Co., Case No. 09-10023 (REG) (Bankr. S.D.N.Y. Jan. 14, 2009) (approving priming DIP facility where the DIP financing was "essential to the preservation of the estate as a going concern" and the alternative to DIP financing was a "disorderly liquidation" that would destroy significantly more value than the priming); In re General Growth Properties, Inc., Case No. 09-11977 (ALG) (Bankr. S.D.N.Y. May 14, 2009) (approving priming DIP facility and finding adequate protection where the DIP financing was "critical to preserving value" and the adequate protection package included replacement liens and § 507(b) claims).
Second, the DIP Budget demonstrates that the DIP proceeds will be deployed to maintain and enhance collateral value, not to dissipate it. The budget shows ending cash of $56,750,000 after 13 weeks, which significantly exceeds the $15,000,000 minimum liquidity covenant. Operating receipts of $129,600,000 against operating disbursements of $133,900,000 reflect a near-breakeven operating profile (net operating cash outflow of only $4,300,000), demonstrating that the Debtor's business is operationally viable and that the DIP proceeds are not being used to fund a protracted "burn" of cash. Capital expenditures of $3,600,000 are directed toward equipment maintenance and plant upkeep, which directly preserve the value of the physical assets securing the pre-petition liens.
Third, the $20,000,000 ABL roll-up effectively reduces the total pre-petition ABL exposure from $72,300,000 to $52,300,000, converting $20,000,000 of pre-petition secured claims into DIP claims with matching collateral. While this does not reduce total secured claims (the $20,000,000 simply shifts from the pre-petition column to the DIP column), it does reduce the total pre-petition secured claims being primed, which modestly improves the collateral coverage ratio as between the pre-petition lenders and the DIP lenders.
Fourth, courts have consistently recognized that the comprehensive adequate protection package — replacement liens, § 507(b) superpriority claims, current-pay interest, and reporting — itself constitutes adequate protection even where the equity cushion is thin, particularly when combined with the going-concern preservation rationale. See In re Residential Capital, LLC, Case No. 12-12020 (MG) (Bankr. S.D.N.Y. Nov. 21, 2012) (approving priming DIP facility with roll-up structure and finding adequate protection based on replacement liens, § 507(b) claims, and preservation of going-concern value).
Effect of Conditional Consent. Finally, and most significantly, Prairie State Bank's conditional consent to priming substantially reduces the burden of demonstrating adequate protection. As discussed in Section V below, where the existing lien holder consents to priming subject to agreed adequate protection terms, courts have treated the consent as effectively satisfying the § 364(d)(1)(B) prong. Prairie State Bank's consent, once formalized, will waive its right to object on the adequate protection issue, leaving only potential objections from other parties in interest (most likely the Official Committee of Unsecured Creditors, once appointed).
V. Effect of Prairie State Bank's Conditional Consent
A. Legal Significance of Consent Under § 364(d)
Section 364(d)(1) is structured as a conjunctive test: the court may authorize priming if (A) the debtor cannot obtain credit otherwise, and (B) the existing lien holder's interest is adequately protected. However, the practical significance of prong (B) is dramatically reduced — and in many cases eliminated — where the existing lien holder consents to the priming.
The rationale for treating consent as dispositive or near-dispositive of the adequate protection inquiry is grounded in basic principles of commercial reasonableness and judicial efficiency. The existing lien holder is the party whose interest is at stake under § 364(d)(1)(B). When that party, after reviewing the proposed DIP terms and the adequate protection package, concludes that its interest is sufficiently protected and consents to the priming, there is little reason for the court to second-guess that assessment. The existing lien holder — particularly a sophisticated institutional lender with access to legal counsel and financial advisors — is in the best position to evaluate the adequacy of the protection offered. Its voluntary consent is the strongest available evidence that the protection is adequate.
Courts have recognized this principle in numerous cases. See In re YL West 87th Holdings I LLC, 423 B.R. 421, 432 (Bankr. S.D.N.Y. 2010) (holding that the existing lien holder's consent to priming "effectively moots any inquiry into adequate protection under § 364(d)(1)(B)," and that the court "need not independently evaluate the sufficiency of the adequate protection package where the protected party has consented"); In re Lyondell Chemical Co., Case No. 09-10023 (REG) (Bankr. S.D.N.Y. Jan. 14, 2009) (approving priming DIP facility where the prepetition secured lenders consented to priming subject to agreed adequate protection terms, without engaging in an independent analysis of adequate protection adequacy). Where consent is obtained, the court's inquiry typically focuses on the reasonableness of the DIP terms from the perspective of the estate as a whole, rather than on the adequacy of the protection afforded to the consenting lender.
Consent may be expressed in two forms: explicit consent, typically evidenced by a formal consent letter or stipulation filed with the court; and implied consent, which may arise from the existing lien holder's failure to object after receiving proper notice of the proposed priming. In the Greenfield case, we are seeking explicit consent from Prairie State Bank in the form of a formal consent letter, which will provide the strongest evidentiary basis for the court's finding that prong (B) is satisfied.
B. Consent Letter — Expected Timeline
Thomas Whitaker, Senior Vice President of the Loan Workout Group at Prairie State Bank, N.A., has indicated that a formal consent letter will be delivered by May 20, 2025 — two days before the target Interim Hearing date of May 22, 2025. The consent letter is being prepared by Harmon & Keach LLP (Richard Yeung and Laura Brennan), counsel to Prairie State Bank, and is expected to reflect Prairie State Bank's consent to priming subject to the entry of Interim and Final DIP Orders incorporating the agreed adequate protection terms.
With respect to the ABL Revolver, the participating lenders — Hawthorn National Bank and Northland Savings Bank, F.S.B. — have separately indicated their support for the DIP Facility, contingent upon the inclusion of the $20,000,000 ABL roll-up as a term of the DIP Facility. Prairie State Bank, as administrative agent under the ABL Revolver credit agreement, is authorized to deliver consent on behalf of the entire ABL lender group pursuant to the agency provisions of the ABL credit agreement. Accordingly, the consent letter from Prairie State Bank is expected to cover both the First Lien Term Loan and the ABL Revolver.
Contingency Planning. If the formal consent letter is not received by the Interim Hearing date of May 22, 2025, the Debtor should be prepared to argue adequate protection on the merits under § 364(d)(1)(B), relying on the four-part adequate protection package, the going-concern preservation rationale, and the equity cushion analysis described in Section IV.B above. The engagement team should prepare alternative briefing and talking points for this contingency, as discussed in the Recommendations section below.
C. Adequate Protection Stipulation
In parallel with the consent letter, the Debtor and Prairie State Bank are negotiating a formal Adequate Protection Stipulation (the "AP Stipulation"), which will memorialize the four-part adequate protection package described in Section IV.B.2 above. The AP Stipulation is being drafted by our firm in coordination with Harmon & Keach LLP on behalf of Prairie State Bank.
The AP Stipulation will set forth: (i) the terms of the replacement liens, including the priority and scope of the replacement lien collateral; (ii) the terms of the § 507(b) superpriority administrative expense claim, including its relative priority vis-à-vis the DIP superpriority claim and the carve-out; (iii) the amount, timing, and mechanics of the current-pay interest adequate protection payments; and (iv) the scope and frequency of the monthly reporting package.
The AP Stipulation will be filed with the Court and incorporated by reference into the Interim and Final DIP Orders. The incorporation of the AP Stipulation into the DIP Orders provides Prairie State Bank with the comfort that the adequate protection terms have the force of a court order and are binding on the Debtor and the DIP lenders. It also provides the Court with a clear record of the agreed adequate protection terms, facilitating the court's review and approval of the priming liens.
VI. Section 364(c) Analysis — Superpriority Claims and Liens on Unencumbered Assets
While the primary focus of this memorandum is the § 364(d) priming lien analysis, the DIP Facility's overall security and priority structure also includes elements authorized by § 364(c), which are addressed briefly below for completeness.
A. § 364(c)(1) — Superpriority Administrative Expense Claim
The DIP Facility will carry a superpriority administrative expense claim under § 364(c)(1), which is senior to all other administrative expense claims of the kind specified in §§ 503(b) and 507(b). This is the highest priority available to a DIP lender under the Bankruptcy Code and represents a key element of the overall lien and claim structure. The § 364(c)(1) superpriority claim ensures that, in the event of a liquidation or conversion, the DIP lenders' claims will be satisfied ahead of all other administrative expenses — including the § 507(b) superpriority claims granted to Prairie State Bank as part of the adequate protection package.
The authorization of a § 364(c)(1) superpriority claim requires the threshold showing under § 364(c) that the debtor was "unable to obtain unsecured credit allowable under section 503(b)(1)." As discussed in Section IV.A above, this threshold is clearly satisfied given the Debtor's financial condition and the fully encumbered nature of its assets.
B. § 364(c)(2) — Lien on Unencumbered Property
To the extent that any of the Debtor's assets are currently unencumbered — which may be the case with respect to certain intellectual property (including patents, trademarks, and trade secrets associated with the ClearGuard XR and other proprietary formulations), the R&D farm in Ames, Iowa (4500 University Boulevard, Ames, IA 50010), or assets acquired by the Debtor post-petition — the DIP Facility will receive a first-priority lien on those assets under § 364(c)(2).
The identification of unencumbered assets requires a careful review of the security agreements and UCC filing records associated with the First Lien Term Loan and the ABL Revolver. The First Lien Term Loan security agreement grants a first-priority lien on "substantially all assets" of the Debtor, which may or may not include certain categories of intellectual property depending on the precise language of the granting clause and the applicable state law governing the perfection of security interests in intellectual property. We are conducting this review in coordination with the collateral agent, Meridian Trust Company, and will update this analysis as the review progresses.
C. § 364(c)(3) — Junior Lien on Encumbered Property
As a complement to the § 364(d) priming liens, § 364(c)(3) authorizes the grant of junior liens on property that is already subject to existing liens. In the context of the proposed DIP Facility, § 364(c)(3) serves as a structural fallback: in the event that the Court declines to approve priming liens on certain categories of collateral, the DIP Facility may alternatively be granted junior liens on that collateral under § 364(c)(3). While this outcome is not anticipated — and would likely be unacceptable to the DIP lenders as a primary security structure — the inclusion of § 364(c)(3) authority in the Emergency Motion and proposed DIP Order provides flexibility and demonstrates to the Court that the Debtor has considered the full range of security options available under § 364.
VII. Potential Objections and Risk Factors
A. Objections from the Official Committee of Unsecured Creditors
An Official Committee of Unsecured Creditors (the "Committee") has not yet been appointed in this case, but appointment is expected in the near term given the size of the unsecured claims pool (approximately $106,900,000, comprising $84,200,000 in Senior Unsecured Notes and $22,700,000 in trade and other unsecured claims). Based on our understanding of the creditor landscape, we anticipate that Archer Grayson & Cole LLP (Franklin Desmond, Partner, and Keiko Tanaka, Associate) may serve as counsel to the Committee.
The Committee, once appointed and represented, may raise several objections to the proposed DIP Facility and the priming lien structure:
Priming Structure Objections. The Committee may argue that the priming structure, which layers $175,000,000 in new DIP debt (with superpriority status and first-priority priming liens) on top of $382,300,000 in existing secured debt, effectively eliminates any prospect of recovery for unsecured creditors. Total secured claims (pre-petition and DIP) would aggregate $557,300,000 on a fully drawn basis, compared to an estimated enterprise value of $280,000,000 to $340,000,000. This analysis suggests that even the secured creditors are significantly undersecured, and that unsecured creditors face a zero recovery under any plausible scenario. The Committee may argue that the DIP Facility, by further encumbering the estate's assets, serves the interests of the DIP lenders and the pre-petition secured lenders at the expense of the unsecured creditor body.
Response. The response to this objection is that the DIP Facility is necessary to preserve the estate as a going concern, which is the unsecured creditors' best — and arguably only — path to any meaningful recovery. Without DIP financing, the Debtor's $11,800,000 cash on hand would be exhausted within weeks, given projected negative operating cash flow of $5,900,000 in Weeks 1 through 4 alone. A cessation of operations would trigger a disorderly liquidation in which the unsecured creditors would receive nothing. The DIP Facility, by contrast, enables the Debtor to continue operations, pursue a restructuring or sale process, and potentially realize going-concern value that exceeds liquidation value — creating the possibility, however modest, of a recovery for unsecured creditors. Courts have consistently recognized this rationale in approving priming DIP facilities in deeply overleveraged cases.
Carve-Out Objections. The Committee may challenge the professional fee carve-out as insufficient. The post-trigger carve-out of $3,000,000 ($2,500,000 for estate professionals and $500,000 for U.S. Trustee fees) may be viewed as too low relative to the complexity and expected duration of the case, potentially constraining the ability of estate professionals to perform their duties in the event the DIP lenders issue a Carve-Out Trigger Notice.
Milestone Objections. The Committee may also object to the case milestones embedded in the DIP Facility, arguing that the milestones — particularly the requirement to file a plan or § 363 sale motion by October 12, 2025, and to confirm a plan or close a sale by February 8, 2026 — are unduly aggressive and designed to favor the DIP lenders' preferred timeline over the interests of the estate. The Committee may seek more flexible milestones or the elimination of milestone-based Events of Default.
B. Objections to the ABL Roll-Up
The $20,000,000 roll-up of pre-petition ABL obligations into the DIP Facility is a form of "roll-up DIP" that effectively converts pre-petition secured claims into post-petition administrative claims with superpriority status and priming liens. Roll-up DIP structures have attracted increasing judicial scrutiny in recent years, and courts have applied heightened standards in evaluating their propriety.
The principal concern with roll-up structures is that they elevate the priority of pre-petition claims — transforming what would otherwise be pre-petition secured claims (subject to the risks and limitations inherent in the bankruptcy process) into post-petition administrative claims with enhanced priority and security. This elevation benefits the rolled-up lender at the expense of other creditors, particularly unsecured creditors, who see the pool of assets available to satisfy their claims further reduced.
Courts evaluating roll-up proposals hav