There is a debate about whether or not there will be any need for DIP financing which is arranged for the benefit of U.S. companies that have filed for Chapter 11 Bankruptcy.  Indeed, there have been some comments in the financial press that this business cycle should be benign enough to forego the need for this type of business. We find this surprising considering the credit crunch and the exit of some of the traditional players in DIP financing. Ultimately the nub of the issue is about corporate default rates, which in large part reflect macroeconomic conditions, access to credit, and the state of the banks.  While we think that an economic recovery is in place in the United States, we have serious concerns about sustainability and in that regard the current outlook for corporate default rates as too rosy.  That means DIP financing is likely to be in demand and there will be plenty of companies to buy.

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