This NY Times article reports that Delta Airlines is finalizing debtor-in-possession financing arrangements, which is a strong signal that the airline is likely to file a chapter 11 case in the near future.
Debtor-in-possession (“DIP”) financing provides loans that a chapter 11 debtor taps immediately after the commencement of a chapter 11 reorganization to bridge the debtor’s pre-bankruptcy financing arrangements with the financing that is ultimately approved under the debtor’s confirmed reorganization plan under which the debtor emerges from chapter 11. The U.S. Bankruptcy Code provides several legal protections to induce lenders to provide DIP financing, so DIP financing — particularly in big reorganization cases — has become a quite lucrative area of the financing business that attracts a number of large lenders. Consequently, although it would at first seem somewhat counterintuitive in regard to a financially-strapped company such as Delta, there is probably quite a bit of competition going on within the DIP financing community for Delta’s business in this area.