Exit Financing Explainer
Exit financing is the debt or other capital a reorganized company uses to leave bankruptcy and operate after its plan becomes effective. It may repay debtor-in-possession financing, refinance old claims, fund creditor distributions, provide working capital, and demonstrate that the post-bankruptcy business has enough liquidity to continue.
The facility is negotiated alongside the restructuring plan but generally becomes available at emergence. Lenders assess the reduced debt load, projected cash flow, collateral, management, industry conditions, and the feasibility of the plan. Terms can include a revolver, term loan, asset-based line, or combination of facilities.
A committed exit package can increase confidence that the plan is workable and that suppliers, employees, and customers will be supported after court protection ends. It also establishes the reorganized company’s initial leverage, covenants, interest burden, and financial flexibility.
Forecasts prepared during a restructuring can still prove optimistic. Market conditions may change before emergence, commitments may carry conditions, and tight covenants may create a new liquidity problem. Stakeholders should test downside performance, maturity concentration, fees, collateral coverage, and whether the company exits with enough cushion for ordinary volatility rather than only the base case.
Exit capital replaces bankruptcy-era funding and supports the reorganized company.
It is part of making the plan effective.
Revolvers and term loans determine leverage and liquidity after court protection.
Covenants shape future flexibility.
A base-case forecast may not survive normal volatility.
Test conditions, maturities, and downside liquidity.
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