Superpriority Secured Debtor-In-Possession Credit Agreement

According to the Seventh Circuit Panels, Peoria had a “better claim” because the clear language of the lease showed that the property was automatically transferred to Peoria 90 days after the lease was terminated. Given that the RTC never had any additional rights to “structures” or “low-level facilities and/or improvements,” the Tribunal stated that BP had not been able to “hold greater rights to the property than rtC originally held”, even with a priority claim and a first priority pledge in the event of bankruptcy. As a result, the Seventh Arrondissement authority found that the bank`s interest in security could not reach the structures and facilities of the Peoria landfill. IDS is often financed by long-term loans. These loans are fully funded throughout the bankruptcy process, resulting in higher interest costs for the borrower. In the past, revolving credit facilities were the most commonly used method of allowing a borrower to withdraw the loan and repay it if needed; Like a credit card. This allows for greater flexibility and, therefore, the ability to keep the cost of interest low, since a borrower can actively manage the amount of the loan borrowed. The Bankruptcy Act contains a number of provisions designed to encourage lenders to provide loan financing (DIP) in Chapter 11 cases, including the approval of “super-priority” administrative fee applications and pledge fees to ensure repayment of DIP loans. However, as a recent U.S. Court of Auditors decision for Circuit Seventh shows, these provisions do not exempt a DIP lender from its obligation to diligently pay the terms of the loan, including the amount and value of the collateral that guarantees it. In Banco Panamericano, Inc. v. City of Peoria, 880 F.3d 329 (7 cir 2018), found that a DIP lender with a super-priority right, guaranteed by a “white pledge” over the entire estate of the debtor tenant, had no “best right” to the property that automatically returns to the lessor at the end of a tenancy agreement.

Second, the case demonstrates the importance of prudent diligence in assessing collateral for a DIP loan. Simply put, if the debtor does not own a portion of the assets used in his business (either at the beginning of the DIP loan or as a result of a transfer under the terms of a valid contract), the priority receivables or priority lump sum rights granted under the financing of the DIP will not bring these assets into the world of the lender`s guarantees. BP argued that the “other reason” that it had “a better right to advantage” that Peoria was that BP had a priority right against BP and a first priority pledge on all RTC assets, which should take into account any city rights based on its lease agreement with RTC.