Why does DIP (debtor-in-possession) loan has such high interest rate + facility/admin fees when it is basically guaranteed by bankruptcy laws? (Postbk priority and/or priming lien)?

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I wouldn't say it's "basically" guaranteed. They have top priority, but I have seen cases where it doesn't get repaid. Also, sometimes it gets "repaid" through a credit bid (kind of like a debt or equity swap) or roll into exit financing, which of course is different than a cash repayment.

But the ultimate answer is that due to prepetition lender's ability and wish to not get primed, and most lenders being unwilling to provide DIP on a junior basis, the prepetition lenders are the only game in town and get to pick their terms. There is some bk law that says the interest and fees must be reasonable, but trying to get a judge to deny a DIP when the company is saying that the DIP is the only thing that stands between a reorganized company and chapter 7 liquidation is challenging.

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Additional Posts in Restructuring

Is it true that restructuring/turnaround engagements can get very hostile given the type of work this industry is in (distressed)? Management not being cooperative, overall environment very depressing, internal politics, fraud, management not being cooperative, pressure to deliver quickly, debtor/creditors screaming at each other, etc. Understand this may vary project to project, but is this common?

Am currently not in restructuring but am looking to enter in the future.

Thoughts on FTI, A&M, Alix from an Restructuring perspective? Both company and creditor side work?

I have a modeling test interview for A&M securities coming up. It is for the RX analyst role within their corp fin practice. I know I will have 12 hours to complete the case and it will likely be a 3 statement model. Anyone know of any specific resources I could use to prep? How tough are A&M in their modeling tests?

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A couple questions for the turnaround consulting fishes:
1. Is FP&A experience valuable for restructuring/turnaround consulting? I’m a CPA with experience in Big 4 FDD and a short stint in IB. Total work experience is a little over 2 years. I recently joined a RE company as a Sr FA in FP&A where I expect that I’ll be mostly doing budgeting & forecasting work.
2. If my goal is turnaround consulting, what should I focus on right now to best position myself?

I appreciate any insights/guidance.

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