Every company needs access to cash to fund its operations. Companies in bankruptcy are no different. But how should a company planning to enter bankruptcy approach this issue if all of its cash is tied up by a secured lender? What will a bankruptcy judge say when the company asks her permission to use cash on terms presented by its lender? How should lenders, debtors, and creditors approach negotiations over the terms of a cash collateral order or debtor-in-possession (DIP) financing agreement? For 2021, professionals must also understand the impact that the economic programs enacted under the CARES Act may have on the use of cash by a commercial debtor during its case. This webinar focuses on answering these questions for advanced business reorganization practitioners and advisors from the perspective of all parties to a negotiation, as well as addressing best practices in drafting, negotiating, and presenting cash collateral and DIP financing orders in complex reorganization proceedings. To view the accompanying webinar, go to: https://www.financialpoise.com/financial-poise-webinars/negotiating-and-drafting-cash-collateral-dip-financing-orders-2021/

1. 1

2. 2
Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. 3
Thank You To Our Sponsor

5. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
5

6. Meet the Faculty
MODERATOR:
Mark Melickian - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Matthew Christensen - Angstman Johnson
Victor Vilaplana - Foley & Lardner LLP
Joseph Acosta - Dorsey
6

7. About This Webinar – Negotiating and Drafting
Cash Collateral/DIP Financing Orders
Every company needs access to cash to fund its operations. Companies in bankruptcy are no
different. But how should a company planning to enter bankruptcy approach this issue if all of
its cash is tied up by a secured lender? What will a bankruptcy judge say when the company
asks her permission to use cash on terms presented by its lender? How should lenders,
debtors, and creditors approach negotiations over the terms of a cash collateral order or
debtor-in-possession (DIP) financing agreement? For 2021, professionals must also
understand the impact that the economic programs enacted under the CARES Act may have
on the use of cash by a commercial debtor during its case. This webinar focuses on
answering these questions for advanced business reorganization practitioners and advisors
from the perspective of all parties to a negotiation, as well as addressing best practices in
drafting, negotiating, and presenting cash collateral and DIP financing orders in complex
reorganization proceedings.
7

8. About This Series – Bankruptcy Transactions:
Advice for the Advanced Practitioner
Corporate transactions are fraught with complicated legal, business, and financial issues. And
transactions in the context of a bankruptcy proceeding often adds a further layer of
complexity. Whether representing an asset purchaser seeking to acquire assets “free and
clear” of liens and encumbrances; trading claims against a bankrupt company; or negotiating
and drafting orders governing the use of a bankruptcy company’s cash, businesses and their
advisors must have a robust understanding of the issues they face. This series provides tools
for business owners and their advisors to navigate through the landscape of bankruptcy
transactions, demystify esoteric concepts, and discuss best practices for advanced
professionals working on these matters.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
8

9. Episodes in this Series
#1: Representing Asset Purchasers in Bankruptcy
Premiere date: 2/9/21
#2: Bankruptcy Claims Trading
Premiere date: 3/9/21
#3: Negotiating and Drafting Cash Collateral/DIP Financing Orders
Premiere date: 4/6/21
9

10. Episode #3
Negotiating and Drafting Cash Collateral/DIP
Financing Orders
10

11. Fundamentals: Debtor in Possession
• Debtor in possession = debtor remaining in control of entity while serving the role of
trustee
• Debtor in possession responsibilities:
 § 1107(a) – debtor in possession shall have all the rights, powers, and shall
perform all the functions and duties of a trustee serving in a case.
 § 363(c) – The trustee may not use, sell or lease cash collateral unless
o (c)(1) Each entity that has an interest in such cash collateral consents; or
o (c)(2) The court, after notice and a hearing, authorizes such use, sale, or
lease
o Note: A consent agreement that the court has not approved and was not
given the opportunity to approve may be unenforceable. See In re
J.L.Graphics, Inc., 62 B.R. 750 (Bankr. D. N.H. 1986)
11

12. Fundamentals: § 363(a) - Cash Collateral
• 11 U.S.C.A. § 363(a) defines cash collateral as:
 “Cash, negotiable instruments, documents of title, securities, deposit accounts,
or other cash equivalents whenever acquired in which the estate AND an
entity other than the estate have an interest and includes the proceeds,
products, offspring, rents, or profits of property and the fees, charges, accounts
or other payments for the use or occupancy of rooms and other public facilities
in hotels, motels, or other lodging properties subject to a security interest as
provided in section 552(b) of this title, whether existing BEFORE OR AFTER
the commencement of a case under this title.”
12

13. Fundamentals: § 363(a) - Cash Collateral
• Examples of typical forms of cash collateral
 Rents and profits of income producing property
 Proceeds of prepetition contracts
 Proceeds of accounts receivable
 Proceeds from the disposition of inventory
 Etc.
13

14. Fundamentals: Cash Collateral Categories
• Soft Collateral
 Collateral consumed in the operation of the debtor’s business
• Hard Collateral
 Not used up, but may depreciate such as buildings, machinery, etc.
14

15. Fundamentals: § 363(e) - Adequate Protection
• Upon appropriate request, A secured creditor has the right to “adequate
protection” of its collateral
 Secured Creditor is entitled to have the value of its collateral maintained at all
times, and it can obtain relief from the automatic stay and take back its
collateral at any time if that interest is not adequately protected
15

16. Fundamentals: § 363(e) - Adequate Protection
• § 361 Examples of Adequate Protection Options
 Periodic cash payments equivalent to decrease in value of collateral
 Replacement lien
 Other relief that provides “indubitable equivalent”
 Equity Cushion
o Equity cushion is not explicitly listed in § 361 but can come into play for
hard collateral such as when the value of real estate is greater than the
debt owed
16

17. Fundamentals: § 364 - Obtaining Credit - Hierarchy
of Options
• 364(a) Debtor is allowed to incur unsecured debt in the ordinary course of business
• 364(b) Debtor may seek court approval for an unsecured loan other than in the
ordinary course of the debtor’s business
• 364(c)(1) with priority over any or all administrative expenses of the kind specified in
section 503(b) or 507(b) of this title
• 364(c) Debtor may obtain a post-petition secured loan through liens on
unencumbered property or junior liens on encumbered property
• 364(d) If credit cannot be obtained on the above terms, debtor may seek
approval with liens that prime pre-existing liens
 CRITICAL POINT: Priming liens are a last option, and it is debtor’s burden to
prove that primed lenders are adequately protected
17

18. Summary So Far
• Debtor in possession is generally authorized to operate business (§ 1108), however,
obtaining the funds necessary to continue operations is often challenging given the
debtors strained financial relationships
• Practicality
 Obtaining nonconsensual use of cash collateral approval will likely involve
considerable time and money the debtors does not have
 Debtor is unlikely to find:
o a lender willing to risk extending an unsecured loan under 364(a) or (b),
o a lender willing to accept junior liens under 364(c)(3)
 Additionally, the debtor likely does not have unencumbered property available
for secured loan under 364(c)(2)
18

19. Summary So Far
• More realistic options for obtaining operational funds
 Use of cash collateral agreement under § 363(c)
 Debtor in possession (DIP) financing under
o § 364(c)(1) – Super-super priority
o § 364(d) – Priming lien
19

20. Perspectives and Leverage
• Debtor has minimal leverage as prolonged delay or failure to procure operational
funds will likely extinguish the opportunity for a successful reorganization
• Secured creditors have high leverage because their cooperation is paramount to the
debtor’s successful reorganization
• BIG PICTURE: Creditors generally benefit more from a quick and successful
reorganization than a contentious attempted reorganization that ends in liquidation
 This incentivizes existing creditors to facilitate the debtor’s continuing
operation, particularly if they can offset some existing risk by improving the
priority of their prepetition claims*
20

21. Term Restrictions
• Given the leverage disparity between the debtor and creditors, Amended
Bankruptcy Rule 4001 provides procedural mechanisms to protect debtors (notice
and hearing requirements), additionally many courts have adopted local rules to
supplement these protections and prevent the use of “extraordinary provisions”
• The following slides will discuss some common terms that appear on cash collateral
agreements and DIP financing agreements
21

22. Term 1: Sufficient Adequate Protection
• In any Cash Collateral Agreement, a secured creditor’s primary objective is to
ensure they will receive sufficient adequate protection
• Sufficiency is determined by the valuation of collateral
• Again, AP can be achieved through additional liens on collateral, periodic cash
payments, or other methods
22

23. Valuation Theory
• 11 U.S.C.A. § 506(a) – Valuation of collateral is to be conducted in light of the
purpose of the valuation and the proposed disposition or use of the collateral
• Valuation factors (In re Martin (8th Circuit))
 Extent of secured creditor’s interest in cash collateral
 Extent that secured creditor’s interest will be adversely affected by debtor’s use
of Cash Collateral
 Methods available for secured creditor’s interest to be adequately protected
23

24. Proof of Interest
• Creditors have the burden of proving validity, priority, and extent of their interest in
property
• Undervaluation of interest is a substantial concern for secured creditors
 To supply a basis for interest secured creditors will offer into evidence:
o security agreements
o financing statements
o mortgages
o any other documents relevant to interests
24

25. Term 2: Budget and Access
• A provision requiring the debtor to provide certain reporting to the lender and further
allowing the lender to have access to the books, records and premises of the debtor
for the purpose of monitoring its collateral
• CREDITOR PERSPECTIVE: Wants transparency to ensure proper management
• DEBTOR PERSPECTIVE: Wants to maintain autonomy and not have decisions
second guessed
25

26. Term 3: “Dive” Provision
• This type of provision will be sought by the lender to:
 Validate and ensure the enforceability of the lender’s prepetition liens
 Waive any potential future claims against the lender such as 506(c) surcharge
claims
• CREDITOR PERSPECTIVE: The lender wants to have certainty where it stands
and avoid future liability
26

27. Term 3: “Dive” Provision
• OTHER PERSPECTIVES: Blanket waivers or releases of claims and defenses may
have unforeseen consequences that affect other creditors down the road potentially
violating the DIP’s fiduciaries duties
• Some courts have also taken issue with lien validity concessions
 “To adjudicate the validity, priority, or extent of a lien requires the
commencement of an adversary proceeding.” In re Roblin Indus., Inc., 52 B.R.
241, 244 (Bankr. W.D.N.Y. 1985)
27

28. Term 4: Default and Acceleration
• Withdrawal of consent to use cash collateral or termination of further financing, upon
occurrence of a default, dismissal, or conversion to chapter 7
 Some precedence exists allowing a default to initiate the lifting of the automatic
stay if appropriate notice was given, but such extraordinary terms are unlikely
to hold up today. See In re FCX, Inc., 54 B.R. 833, 843 (Bankr. E.D.N.C. 1985)
• CREDITOR PERSPECTIVE: We don’t get fooled again!
 Meet the new boss, same as the old boss – The Who
28

29. Term 5: Survivability
• The financing agreement and order shall continue to be binding and survive such events
as the confirmation of a plan or reorganization, the dismissal of a case, the conversion of
the case, or the filing of any subsequent case under the Bankruptcy Code.
29

30. Term 6: Cross-Collateralization
• prepetition debt collateralized by postpetition collateral (roll up) as part of the price
for making postpetition loans to the debtor-in-possession
• CREDITOR PERSPECTIVE: Improving positioning in the priority scheme can be a
huge difference in total recovery
 Argument: The Bankruptcy Court is empowered under 11 U.S.C.A. § 105(a) to
issue orders that are necessary to accomplish the ultimate goal of the debtor's
reorganization.
30

31. Term 6: Cross-Collateralization
• OTHER PERSPECTIVES: Other creditors do not want to be jumped in priority
position
 Argument: The Bankruptcy Code does not authorize cross-collateralization in
the situation where the existing lender may be undersecured and therefore
cross-collateralization violates the scheme of distribution by allowing a creditor
to improve its position
31

32. Term 7: Prohibit Third Party Financing
• Lender's lien shall not be subordinated, altered or affected by any subsequent financing
32

33. Term 8: Payment of Professionals
• Address the treatment of professional fees and expenses of the debtor-in-possession
and the official unsecured creditors' committee
33

34. Term 9: Insurance
• Covenants from the debtor with regard to maintenance of insurance, the payment of
taxes, the terms upon which collateral may be sold, and the collection of accounts
receivable
34

35. Term 10: Exclusive Jurisdiction
• Exclusive jurisdiction of the Bankruptcy Court over the parties and subject matter of their
agreement
35

36. About the Faculty
36

37. About The Faculty
Mark Melickian - mmelickian@sfgh.com
Mark Melickian leads Sugar Felsenthal Grais & Helsinger LLP’s restructuring practice. Over the past 20 plus years,
he has worked primarily on business transactional and litigation matters with a focus on chapter 11 commercial
bankruptcy cases and non-bankruptcy distressed situations. His practice includes both debtor- and creditor-side
representations and include financial institutions, indenture trustees, trade creditors, asset purchasers, investors,
commercial real estate interests, corporate officers, and other parties in interest in chapter 11 cases throughout the
country. In addition, a significant focus of his practice is the representation of committees and other estate
fiduciaries in bankruptcy cases – over the past two decades, he has counseled dozens of official and unofficial
bankruptcy committees, liquidating trustees, litigation trustees, and plan administrators charged with pursuing and
liquidating assets for the benefit of estate creditors. Mark has written extensively on bankruptcy and insolvency law
and other topics, having contributed materials on these subjects to American Bankruptcy Institute Journal,
Bankruptcy Strategist, Wiley Bankruptcy Law Update, Ginsberg & Martin on Bankruptcy, Norton Bankruptcy Law
Adviser, the Cornell University Legal Ethics Library, and dozens of professional conferences and seminars. For
several years, he wrote a monthly legal affairs column for Student Lawyer, an America Bar Association publication,
for which he received the Peter Lisagor Award for Exemplary Journalism from the Chicago chapter of the Society of
Professional Journalists. He is a graduate of Colorado State University and Northwestern University School of Law.
37

38. About The Faculty
Victor Vilaplana - VAVilaplana@foley.com
Victor A. Vilaplana is of counsel and a business reorganization attorney with Foley & Lardner LLP. Victor
focuses his practice on the handling of insolvency matters, particularly complicated business bankruptcies
and international transactions. His experience includes representing businesses in multiple fields, from
medical device companies to agricultural producers in Chapter 11 cases. Victor is a member of the firm’s
Bankruptcy & Business Reorganizations, International, and Latin America Practices as well as the
Automotive Industry Team. Prior to joining Foley, Victor was a shareholder of Seltzer Caplan McMahon Vitek
and a managing partner of the San Diego office of Sheppard, Mullin, Richter & Hampton. Victor is a frequent
lecturer for the California Continuing Education of the Bar, Practicing Law Institute, Law Education Institute,
and National Institute of Trial Advocacy on the topics of insolvency, uniform commercial code, and various
U.S./Mexico related issues, such as real estate ownership, commercial law, equipment leasing and
debtor/creditor relations. He is also an ALI-ABA lecturer on practice under the Bankruptcy Abuse Prevention
and Consumer Protection Act. Victor has authored articles on the administration of multi-national
bankruptcies and prepackage Chapter 11 plans of reorganization. He is co-editor of Advanced Chapter 11
Bankruptcy Practice for the American Law Institute.
38

39. About The Faculty
Matthew Christensen - mtc@angstman.com
Matt Christensen joined Angstman Johnson in 2008 as an associate attorney. Now a member of
the firm, Matt has a civil litigation practice involving commercial law (finance and secured
transactions), bankruptcy, real property, and business matters. He also has a transactional
practice involving real estate, finance and business matters, including franchising. Matt frequently
represents bankruptcy trustees and other fiduciaries in recovering assets and administering
estates. Prior to joining the firm, Matt was a Junior Partner at a Meridian, Idaho, law firm and also
established a solo practice. In addition to practicing law, Matt is an adjunct professor at the
University of Idaho College of Law where he teaches international trade/business, real estate
transactions and law practice management courses. Matt obtained his Bachelor of Arts in
International Studies from Brigham Young University in 2002. He earned his J.D. and LL.M in
International and Comparative Law degrees from Duke University School of Law in 2005. While
at Duke, he was an Articles Editor for the Duke Journal of Gender Law & Policy.
39

40. About The Faculty
Joe Acosta - acosta.joseph@dorsey.com
Joseph has a broad base of bankruptcy, corporate restructuring and commercial
litigation experience, having worked at national and international law firms for most of
his career. During his 21+ years as a lawyer, he has been involved in some of the
largest and most complex restructurings and litigation projects in the United States. He
has taken lead roles in successfully representing debtors, banks, financing companies,
distressed companies, committees, trustees, individuals, landlords, asset purchasers,
retailers, and commercial creditors in all types of proceedings, including bankruptcy
proceedings, federal and state lawsuits, arbitrations, and appeals.
40

41. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
41

44. ABOUT DailyDAC
DailyDAC.com is the leading source of
information about assignments, article 9,
bankruptcy, receiverships, out-of-court
workouts and vulture investing, designed
for business owners and vulture
investors.
Visit us at www.dailydac.com.
Premium Public Notice Service
DailyDAC’s Premium Public Notice Service helps market
asset sales on behalf of fiduciaries (e.g., Chapter 11 debtors-
in-possession and committees, trustees, receivers,
assignees), secured lenders selling collateral under UCC
Article 9, and auctioneers to a very large and self-selected
group of potential bidders and their advisors. The Service
also assists with noticing other events, deadlines, and
milestones – including tombstones and other press releases.
Our free weekly newsletter, DailyDAC contains our
latest bankruptcy article, current Public Notices and all
opportunistic deals added to our proprietary database
that week. Sign up at:
https://www.dailydac.com/dacyak-weekly-newsletter-signup/

45. About Financial Poise
45
DailyDAC LLC, d/b/a Financial Poise™ provides
continuing education to attorneys, accountants,
business owners and executives, and investors. It’s
websites, webinars, and books provide Plain English,
entertaining, explanations about legal, financial, and
other subjects of interest to these audiences.
Visit us at www.financialpoise.com
Our free weekly newsletter, Financial Poise
Weekly, updates you on new articles published
on our website and Upcoming Webinars you
may be interested in.
To join our email list, please visit:
https://www.financialpoise.com/subscribe/