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 2022, 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. Part of the webinar series: BANKRUPTCY TRANSACTIONS - 301: ADVICE FOR THE ADVANCED PRACTITIONER 2022 See more at https://www.financialpoise.com/webinars/

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4. 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,
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5. Meet the Faculty
MODERATOR:
Mark Melickian - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Matthew Christensen - Angstman Johnson
Benjamin M. Rhode - Ropes & Gray LLP
Robert E. Richards- Denton’s
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6. 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.
6

7. 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.
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8. Episodes in this Series
#1: Representing Asset Purchasers in Bankruptcy
Premiere date: 2/8/22
#2: Bankruptcy Claims Trading
Premiere date: 3/8/22
#3: Negotiating and Drafting Cash Collateral/DIP Financing Orders
Premiere date: 4/5/22
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9. Episode #3
Negotiating and Drafting Cash Collateral/DIP
Financing Orders
9

10. 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)
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11. 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.”
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12. 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.
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13. 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.
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14. 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
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15. 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
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16. 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
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17. 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)
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18. 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
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19. 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*
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20. 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
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21. 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
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22. 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
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23. 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
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24. 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
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25. 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
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26. 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)
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27. 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
27

28. 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.
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29. 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.
29

30. 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
30

31. Term 7: Prohibit Third Party Financing
• Lender's lien shall not be subordinated, altered or affected by any subsequent financing
31

32. Term 8: Payment of Professionals
• Address the treatment of professional fees and expenses of the debtor-in-possession
and the official unsecured creditors' committee
32

33. 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
33

34. Term 10: Exclusive Jurisdiction
• Exclusive jurisdiction of the Bankruptcy Court over the parties and subject matter of their
agreement
34

35. About the Faculty
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36. 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.
36

37. 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.
37

38. About The Faculty
Benjamin M. Rhode- Benjamin.Rhode@ropesgray.com
Benjamin Rhode is a counsel in Ropes & Gray’s business restructuring group.
Benjamin’s practice focuses on all aspects of corporate restructuring, bankruptcy and
insolvency proceedings. Benjamin advises public and private companies, boards,
financial sponsors and distressed investors in complex domestic and international
distressed situations, including out-of-court liability management transactions, in-court
chapter 11 proceedings and distressed acquisitions. Benjamin’s experience spans a
broad range of industries, including automotive, retail, oil & gas, health care,
communications, gaming and media & entertainment.
38

39. About The Faculty
Robert Richards – robert.richards@dentons.com
Bob Richards is chair of Dentons' Global and US Restructuring, Insolvency and Bankruptcy
practice groups and practices in the areas of bankruptcy and insolvency-related transactions
and litigation. His practice includes Chapter 11 representations, distressed asset acquisitions,
distressed loan purchases and foreclosure sales, and out of court transactions and transaction
structuring.
39

40. 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.
40

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