Basic forms of D.I.P. financing in Italy

Under the Italian bankruptcy law (“IBL“), DIP financing is generally allowed in the following forms:

A- financing provided to the debtor according to and in compliance with a reorganization plan already filed and approved by the court (section 182-quater IBL, par. 1). Since this form of funding is expressly contemplated by a reorganization plan (or other official documents pertaining to the relevant insolvency proceedings) already approved by the court, it does not need an additional, specific judicial authorization;

B- financing provided to the debtor for the purpose of filing and undertaking a reorganization proceeding, provided that the financing be encompassed by the plan to be filed (section 182-quater IBL, par. 2). It is commonly addressed as “bridge loan“, and it is quite unsafe for the lender, since it is granted at a pre-petition stage, but its super seniority is subject to the positive outcome of the subsequent court decision on the opening of the insolvency proceeding. Moreover, in order to be awarded the super priority status, such financing shall be expressly qualified as “prededucibile“ (i.e. super senior) by the court decision, otherwise it will be likely to be regarded as an ordinary unsecured credit;

C- financing provided to the debtor after (or immediately before) the filing of a reorganization plan, when an independent expert certifies that it determines a better return for creditors and the court authorizes it (section 182-quinquies IBL, par. 1). In this case, the contract is usually subject to the condition precedent of the court authorization, so that in case of rejection the lender does not suffer any loss;

D- financing provided to the debtor after the filing of a reorganization plan, which is aimed at fulfilling the urgent needs of the business, provided that the latter will suffer permanent damages in lack of the financing, and that the debtor cannot otherwise find such economic support. It has to be authorized by the court (section 182 quinquies IBL, par. 2), but it does not need to be “certified” by an independent expert.

The claims arising from such financings, as pointed out above, are granted with super priority, ahead of all company’s existing debts(except from secured creditors that have priority over the cash realized through the sale of the secured assets).