I. US - Chapter 11 - Bankruptcy Code Sec 364 - Gold Standard

Sec 364 creates incentive ladder because no one wants to lend to bankrupt company.

Sec 364(a): Debtor can obtain unsecured credit in ordinary course, treated as administrative expense - superpriority over unsecured.

Sec 364(b): Outside ordinary course, needs court approval after notice, still admin expense.

Sec 364(c): If cannot obtain unsecured credit, court can authorize:

1. Superpriority admin expense under 364(c)(1) - jumps ahead of all other admin expenses
2. Lien on unencumbered assets 364(c)(2)
3. Junior lien on encumbered assets 364(c)(3)

Sec 364(d) - Priming Lien - Most litigated:
Court can authorize senior or equal lien on already encumbered assets (primes existing secured creditor) IF:

• Debtor cannot obtain credit otherwise
• Existing lienholder adequately protected - e.g., equity cushion, replacement lien, cash payments

Sec 364(e): Good faith lender protection - financing order cannot be reversed on appeal if lender acted in good faith, unless stay obtained. This is why DIP orders are rarely overturned.

US Case Laws

Case 1: LATAM Airlines - $2.45 Billion DIP - 2020 - Sub Rosa Plan Doctrine
Bankruptcy court: "as required by section 364(c), LATAM demonstrated that it: (i) was unable to obtain unsecured credit allowable as administrative expense; (ii) had urgent need for financing; and (iii) was appropriate to seek approval of full $2.45B DIP loan facility."

Court initially denied because terms contained prohibited sub rosa chapter 11 plan - e.g., debtors being forced to give equity conversion that dictates plan outcome. DIP cannot predetermine plan.

Principle: DIP financing must be financing, not disguised plan.

Case 2: Banco Panamericano v. RTC - Superpriority
After conversion to chapter 11, court authorized DIP financing: " BP's claims would have superpriority administrative expense priority under section 364(c)(1) and secured by liens in essentially all of RTC's assets."

Case 3: Ninth Circuit - Priming Lien Dispute
Debtors sought DIP with superpriority lien under 364(d), giving DIP lender priority over pre-bankruptcy lenders. Pre-bankruptcy lenders opposed. Court approved because adequate protection shown via equity cushion.

Case 4: Court of Appeals Vacates DIP for Lack of Good Faith
"The Bankruptcy Code encourages lenders to make DIP loans... Because of §364(e), appeal from financing order will ordinarily be moot when lender acted in good faith unless appellant obtains stay pending appeal. It is noteworthy when appellate courts overturn DIP orders not stayed."

If DIP lender knew of adverse claim to collateral, loses 364(e) protection.

II. SPAIN - TRLC Art 667-672 - Ley 16/2022 Reform - Two Types

Spain does NOT have US-style priming lien. Law is more conservative.

TRLC defines two financings:

A) Financiación interina - Interim Financing - Art 667
Money lent during negotiation of restructuring plan, before homologation, that is reasonably and immediately necessary to continue business and preserve value.

Example: Pay wages, suppliers, keep furnaces on (Celsa case).

B) Nueva financiación - New Money Financing - Art 668
Money lent under restructuring plan, to implement plan.

Protections Under Art 667 TRLC - The Incentives

1. Rescission Protection - Art 667: "Interim Financing and/or New Financing operations undertaken within framework of Restructuring Plan may not be rescinded (annulled) in subsequent insolvency proceeding"

This is crucial - normally pre-insolvency transactions within 2 years can be clawed back as perjudicial. DIP financing cannot be clawed back if conditions met.

1. Special Ranking - Art 667-668:
   If subsequent concurso declared:

• 50% of interim/new financing = crédito contra la masa (against the estate) - paid first, before any other creditor, like admin expense
• 50% = crédito con privilegio general - general privilege, ranks after secured but before ordinary unsecured

Conditions for protection - Must meet ALL:

• Plan affects at least 51% of total liabilities - "Protection afforded to interim or new financing requires proof that percentage of total liabilities affected by restructuring plan reaches at least 51% of debtor's total liabilities (Art 667 Act 16/2022)"
• Financing agreement states funds used for business continuity
• If interim financing, must be confirmed in homologation judgment
• Independent expert report favourable (if expert appointed)

Key Differences US vs Spain

III. Spanish Landmark Cases

Case 1: Celsa Group - Juzgado Mercantil 2 Barcelona - Sept 2023 - First Plan Under New Law

Steel group €2.8bn debt. During negotiation 2022-2023, creditors injected interim financing to keep plants running.

Court analysis:

• Celsa had restructuring plans with both interim financing and new financing
• Protection requires 51% threshold met - Celsa met 70%
• Court approved plan where new financing €600M HoldCo PIK notes + €1.2bn senior secured bonds, strengthening capital structure
• "The decision demonstrates it is possible for creditors to propose and execute Spanish restructuring plan without debtor's consent. Ownership transferred to financial creditors pursuant to plan"

Lesson: Interim financing by same creditors who propose plan is allowed, but must be at market terms. If below market or with equity kicker that predetermines outcome, could be seen as sub rosa like US.

Case 2: Telepizza - 2023

Court allowed expert to implement measures included in court-sanctioned restructuring plan even where debtor non-cooperative. Expert arranged interim financing to pay suppliers.

Established expert can be empowered to raise DIP financing under Art 650(2) TRLC.

Case 3: General Rule from Cuatrecasas Study of 20 Plans 2023-2024

Analysis of Celsa, Reverté, Das Photonics, Torrejón Salud:

"Restructuring plans only with interim financing, with new financing, without interim or new financing... Protection afforded to interim or new financing requires proof that percentage reaches 51%"

Many plans failed to get protection because they affected only financial debt (<51% total liabilities including trade, public). Creditors learned to include trade creditors in class to reach 51%.

IV. Disputes on DIP Financing

Most disputes in Spain:

1. Is it really interim financing or disguised capital increase? Trade creditors challenge that financing is actually equity injection to gain control and avoid OPA obligatoria.
2. Market Terms Challenge: Under Art 667, financing must be at market terms. If interest 15% + 20% PIK + warrants, debtor or dissenting creditors argue not market, loses protection.
3. Use of Proceeds: Must be for continuity. If used to pay old debt of favoured creditor, clawback protection lost.
4. Priming Attempt: Spanish banks argue TRLC does NOT allow priming. Some US funds tried to get priming lien via Spanish plan - rejected. Only way to prime is via second ranking with consent or via asset sale free and clear.

V. Practical Checklist to Get DIP Protection in Spain

1. Include in plan that debtor needs €X interim financing for next 6 months, specify use: payroll, energy, raw material
2. Get independent expert report stating financing necessary and at market terms - mandatory if you want to bind dissenting creditors
3. Ensure plan affects >51% total liabilities - calculate using latest balance sheet, include public, trade
4. Document in financing agreement: "This financing is interim financing under Art 667 TRLC for business continuity"
5. File communication of negotiations (Art 585) to get stay of enforcement
6. After homologation, keep proof of use