Superpriority Credit Agreement

Subcontractor Agreement Forms
April 12, 2021
Tenancy Agreement Addendum Bc
April 13, 2021

Superpriority Credit Agreement

A wave of restructuring involving new “super-priority” financing, lenders and other creditors who lend or finance a debtor in a Chapter 11 case, do so until their claims are entitled to an increased payment priority. Although these claims generally have a specific priority status as “administrative claims,” creditors seeking higher priorities must ensure that they meet the requirements of the bankruptcy code in order to obtain that status, so that their claims cannot be compromised as a result of the subsequent development of the bankruptcy. The Bankruptcy Act provides that a liquidator or DIP can obtain loans or unsecured financing in due form and that the resulting debts are treated as administrative costs. See 11 U.S.C No. 364 a). In addition, the bankruptcy court may authorize the agent to obtain unsecured loans or financing that prioritizes administrative costs. Where such unsecured funding is not available, the court may, after notification and hearing, authorize the agent or DIP to obtain unsecured funding with a “super priority” over other administrative costs; or (ii) pawn financing on unsuperated assets, a junior pawn on assets already taxed, a pawn on assets already taxed, which corresponds primarily to existing pawn rights, or a “priming” on assets already burdened, provided that “appropriate protection” is granted to the existing securityholder. See 11 U.S.C 364 (c) and d). 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. 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.

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