On the third day of its bankruptcy, with USD 14m in cash and a payroll to meet, First Brands Group asked a Texas judge to approve USD 4.4bn of DIP financing. Only USD 1.1bn was new money. The other USD 3.3bn was a roll-up: existing debt held by the same lenders, converted into a loan that ranks as a priority claim in the case – effectively a ratio of 3:1. Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas approved the first USD 1.5bn of the roll-up that day, calling it a “rescue facility” and cautioning that his decision should not be read as precedent.

In years past, even a 2:1 roll-up could draw serious resistance, especially at a first-day hearing. Now, 3:1 seems to be commonplace, and a lawyer from Skadden, Arps, Slate, Meagher & Flom that was interviewed for this article said you might even see 4:1 in the near future. The law has not changed – Section 364 of the Bankruptcy Code reads as it always has. What is shifting is what judges approve under it, who lends, and what lenders get in return.

Debtwire’s analysis supports this trend. Of nine DIP facilities sought in September 2025 – when First Brands filed for Chapter 11 – five paired new money with a roll-up, seven came from prepetition lenders, and only one, Omnicare’s USD 110m loan, came from a true third party. In the first two months of this year, prepetition lenders supplied 13 of 16 facilities.

The people who work in this market agree on that much, but differ on what it means. Robert Miller, a University of South Dakota law professor, says there is no natural limit on roll-up ratios because there is too little competition. Steven Smith, co-founder and co-CEO of Smith Goffman Partners, says judges approve aggressive terms only when no one else will lend. Meanwhile, two lawyers at Skadden – Bryan Uelk and Chris Dressel – see the market as evolving, not eroding, and doubt that contested DIP facilities are any more common than before.

In the face of changing DIP terms, Debtwire took a deep dive into recent cases and the people behind them.

First Brands and the 3:1 test

First Brands filed for Chapter 11 on 28 September 2025 with USD 9.3bn in debt obligations and no restructuring support agreement. The financing came from an ad hoc group holding 86% of its first lien term loans and 78% of its second lien term loans.

The terms were rich. New money carried interest of SOFR plus 10%, mostly paid-in-kind. Roll-up loans accrued at SOFR plus 7%, the default rate on the original debt. Lenders also collected a 5% upfront premium, a 10% anchor premium for some, a 5% exit fee, and recurring extension fees. Debtwire’s monthly DIP financing recap put returns above 20%.

The unsecured creditors committee (UCC) called the roll-up “non-market,” accused the lenders of stonewalling discovery, and argued that USD 1.1bn of new money would not even carry the case through a sale. Special purpose vehicle lenders objected over collateral that appeared to have been shifted between entities. Lender Onset Financial objected that the DIP financing would make a non-operating affiliate guarantee USD 4.4bn for almost no benefit. Gibson Dunn, representing the lenders providing the DIP, called the facility a contribution to “a black box without a bottom.”

On 7 November 2025, Judge Lopez approved the final DIP financing order. The debtors had added a USD 200m carve-out for administrative expenses and a larger investigation budget. Under a UCC settlement, the roll-up attached to unencumbered assets only at 1:1, and lenders agreed to look first to other collateral before tort claims and avoidance action proceeds. The headline 3:1 roll-up stayed. Judge Lopez said no one had produced a better offer.

“This is the deal on the table,” he said.

A 3:1 ratio was approved after a fight, but the dispute forced real concessions, which complicates any idea that judges wave these deals through. Skadden’s Uelk called roll-ups “fairly common” put the dynamic simply: lenders ask for them and debtors agree because they need DIP financing.

The first-day squeeze

As a law professor, Miller argues that the real shift in DIP financing is happening at the interim stage, not in the final orders that draw most of the attention. Days into a case, he says, the debtor and its chosen lender hold the most leverage and everyone else has the least time to respond.

“I perceive the interim stage as the more interesting, more controversial, and I would say in the end, more important stage,” he said. Aggressive interim relief feeds through to the final order because the structure is already in place.

First Brands fits that model. The USD 1.5bn interim roll-up was approved on day three of the case, with most objections deferred. So does Saks Global. At a first-day hearing that ran past 11pm on 14 January, Amazon, which had put USD 475m into Saks’s parent, objected that the DIP financing would encumber equity in non-debtor flagship entities. Its lawyer asked for a delay. Judge Alfredo Perez of the US Bankruptcy Court for the Southern District of Texas declined, granting the loan on the business judgment standard. By the 20 February final hearing, negotiations had resolved what he described as about 97% of the issues.

Miller also points to Sangamo Therapeutics, where, in his reading, Judge Craig Goldblatt of the US Bankruptcy Court for the District of Delaware was uncomfortable approving an interim termination fee, which makes it costlier to replace the lender at the final hearing. Judge Goldblatt took a recess to see what other judges in the district had done, Miller said, and then approved the fee on the new money but not the roll-up, after noting that colleagues had allowed such fees. The judge did not say that was his reason on the record, Miller acknowledged, and Sangamo was refinanced anyway. His point is that “the rules matter at the margins.”

Skadden’s lawyers see the speed as the point. Cases are faster now, and DIPs have taken on “plan-like features” to match.

Who is lending

In Smith’s opinion, as the co-CEO of Smith Goffman Partners, the clearest change is that outsiders have mostly stopped lending.

“The number of real third parties that are coming in and providing DIP financing has kind of dwindled to almost nothing,” he said. Existing creditors are “increasingly stepping up,” he added, “and frankly, for their own ends” – controlling the outcome and raising their share of the equity. They are “not making the loan because they want to earn 15% on a loan for three months,” he said.

Debtwire’s numbers fit that pattern. Early this year, only three of 16 facilities involved third-party lenders, all small, new-money-only loans: Inspired Healthcare’s USD 35m, Vanderbilt Minerals’ USD 15m, and Hawthorne Race Course’s USD 16m. Outsiders still lend, it seems, when the deal is clean and the amount modest. The large, complicated cases belong to people already in the capital structure.

Miller reaches the same place from the law. How courts have interpreted adequate protection, the doctrine that shields existing lienholders when a new lender is placed ahead of them, has left “not a functioning market for DIP financing,” he said.

The Skadden lawyers agree about the hurdle but say it is old. An incumbent first lien lender is “always in the pole position,” Dressel said, and a nonconsensual priming DIP is “more of a negotiating tactic than an actual outcome” in most cases. On sponsor- or parent-provided DIPs, Dressel said he could not say whether they had become more common, but such structures inevitably draw scrutiny from junior creditors who feel frozen out.

Smith says bankers canvass the market widely and that when nobody else bids, that is by definition the market price. Meanwhile, Miller says there is no real market to begin with, because the way courts treat adequate protection leaves new lenders little reason to compete.

What it costs

Headline rates tell only part of the story. Smith recently called his usual 20 sources while looking for cheaper DIP financing and was “astonished at some of the terms.” Nobody quoted a 20% rate. However, fees piled up: a one-year minimum on interest even if the loan was repaid in three months, plus upfront and exit fees. Some structures came to about 40% all-in, he said. Smith said outside lenders expect to be squeezed out by existing creditors, so they seek high fees to make the deals they do win especially profitable. Then “they can make a killing on that one loan,” Smith asserted.

One of the Skadden attorneys, Dressel, describes the same shift. Lenders are “trying to capture a broader spectrum of economics,” he said. Fees stack up and treatment depends on how the case ends: paid-in-cash if the DIP is repaid, rolled into an exit facility, or paid in equity-linked form if the DIP equitizes. For about five years, he said, the trend has been toward equity-linked features such as conversion rights and rights offerings.

Debtwire’s tracking shows this. Saks Global’s USD 2.56bn term loan carried a rate for new money at SOFR plus 11% paid-in-kind and cash premiums of 8% and 10%. Because the new money was on-lent through a second facility, it carried two layers of interest and fees. Meanwhile, Pretium Packaging’s USD 533.5m loan looked cheaper at SOFR plus 5.25%, but its fees were paid in equity: premiums worth 23.4% and 26.9% of the new equity. Wiser Solutions’ 90-day bridge to a sale carried 20% PIK interest. Finally, QVC’s USD 300m letter-of-credit DIP converted about USD 281m of existing exposure into priority debt and provided almost no new liquidity.

What this does to a case’s total cost is harder to show. Smith says a fight adds money and time but is limited by the debtor’s cash needs. Miller, who has not studied pricing empirically, acknowledges that greater competition could increase professional fees but argues it could also cut the cost of credit by “tens, maybe even hundreds of millions of dollars.”

When a better offer shows up

The sources interviewed for this article are split on whether alternatives to the incumbent’s DIP proposal are real, though a few cases show what happens when one is.

In 777 Partners’ bankruptcy, filed on 9 August in the Northern District of Texas, existing lender A-CAP offered a USD 14.87m DIP that included releases. Leadenhall Capital Partners, a creditor locked in litigation with A-CAP, objected. At the first-day hearing, Judge Edward Morris adjourned the DIP financing motion, noting “innuendo” from objectors about alternative proposals and giving them time to “put their money where their mouth is.”

They did. After an auction, Judge Morris on 20 August approved only a USD 600,000 interim bridge from A-CAP, and trimmed the order so it could not block another lender from taking A-CAP out at the final hearing. Then on 28 September, he approved a USD 10m Leadenhall loan at zero interest, with no fees and no releases, that let the debtors use the money to sue even the lender. A-CAP’s competing bid had risen to USD 9.12m. The lesson is limited: both bidders were prepetition creditors with their own agendas, in a small, fraud-driven wind-down. Still, it is a clean example of a rival offer improving terms, and it matches Miller’s idea of treating the incumbent’s offer as a benchmark competitors can beat.

Ascend Elements’ Chapter 11 case shows a different kind of resistance. On 14 May, Judge Lopez denied Ascend’s USD 30m all new-money loan from Bluegrass Infrastructure Partners because nearly USD 18.8m was going to fund a Polish land purchase by a non-debtor affiliate. The decision “weighs heavily on me,” he said, but if a third party won the sale, unsecured creditors would “bear the full weight.” The debtors had argued the DIP was the only actionable financing and that without it the company faced liquidation.

That example cuts against the pattern Smith and Skadden’s counsel describe, in which exigency wins. Smith’s test is that an objector must answer, “If this isn’t the DIP, what is the DIP?”

In Ascend, the UCC proposed selling the Polish interests instead. Judge Lopez’s objection was less to price than to where the money was going. Smith says a competitive DIP process is “reasonably open,” though not a perfectly fair auction.

Miller’s concern is competition. A big roll-up, like a termination fee, makes it costlier to replace the DIP lender at the final hearing, because a rival must repay the rolled-up debt as well as fund new money. Each increase in the ratio, he says, shrinks the pool of lenders who can compete and benefits the incumbent.

Who owns the company at the end

If lenders are not in it for the interest, the usual answer is the equity. Smith says existing creditors who offer a DIP “link it to the back end.” DIPs once ran a year or more, he said, because the expectation was rehabilitation. Now “most, if not almost all bankruptcies are really just changing control transactions.” The risk, Smith said, is that those lenders “put their thumb on the scale.” Once a company needs the DIP to keep going and the lender says no, he added, “there’s really kind of no choice.”

Miller draws a line based on information. A convertible DIP is a poor fit at the start of a case, when no one knows what the company is worth and the funders are insiders who know the most and control the outcome. “They’re the most willing to take that risk because they’re in the driver’s seat,” he said, citing airline cases such as LATAM and Aeroméxico. In a prepack, where a valuation is part of the filing, he has little objection.

The Skadden lawyers are guarded about the label. Loan-to-own as a fund strategy is “a little bit less common” than ten or fifteen years ago, Uelk said, partly because of cooperation agreements among lenders. But terms tied to the exit are routine. If loan-to-own simply means an equity-linked DIP, Uelk said, it is “definitely more prevalent.”

LYCRA’s prepack illustrates that distinction: a USD 75m DIP with a USD 10m exit premium and warrants for 9% of the reorganized equity, backing a plan to emerge from bankruptcy within 75 days.

But where is the line between aggressive financing and a sub rosa plan? Uelk said he is not sure. “Lenders will continue to ask for more aggressive terms. Debtors will continue to agree to them because they need DIP financing.”

As those terms become more common, he suggested, provisions once considered a sub rosa plan could become accepted practice.

 

Broken market or rational one

The strongest counterargument comes from people who have sat on both sides.

Smith’s example is LyondellBasell in 2009, when he ran leveraged finance at UBS. The company needed billions in DIP financing within about 48 hours. The lenders used a roll-up. Skeptics predicted the judge would refuse it, but Smith and Jay Goffman – who represented Len Blavatnik, whose Access Industries owned LyondellBasell – agreed he could not: if the loan were denied, plants in Europe would start shutting down within hours.

“I think the courts are pretty savvy about when they have to do something and when they don’t have to do something,” Smith said. Had a rival offered a comparable DIP with no roll-up, he said, the aggressive term would not have been approved. A bankers’ canvass is how a debtor proves there is no alternative. “By definition, that’s the market.”

Uelk added that when a debtor says this is the only financing and the alternative is liquidation, “it’s a very powerful argument.” He also pushed back on the premise that DIP fights are becoming more prevalent, saying he is “not sure the premise that there’s more contested DIPs now than there were before is necessarily true.”

Ten years ago, the typical fight pitted the company and first lien lenders against UCCs. Now the fights are over exit-linked terms and who benefits from a roll-up. The substance changed more than the frequency, he said. On the other hand, Smith does see more litigation, but says an objector must produce a better offer.

Miller’s take is that the rescue framing of DIP financing is part of the problem. Debtors choose when to file, often with minimal liquidity, which pressures the court to approve the interim loan.

“Judges are just human beings,” he said, “in the fact that they want the case to proceed smoothly.”

 

What to watch

The first open question is what a roll-up is. Dressel called it technical, “almost metaphysical,” but consequential. The traditional view treats a roll-up as repayment of the existing debt followed by a new borrowing. Recent cases, including Multi-Color Corporation and Del Monte Foods, have challenged that, he said, while American Tire Distributors’ case stands for the traditional view. The answer can determine whether a lender group may roll up debt for only some first lien holders or must share the economics ratably.

The second is whether judges feel pressure from colleagues. Miller says that where many judges hear these cases, a judge who dislikes a practice may feel “somewhat pressured” by what others in the district approved. He also points to Franchise Group, where, in his account, Judge John Dorsey of the US Bankruptcy Court for the District of Delaware signaled discomfort with a smaller bridge DIP offered by a rival lender group and credited the debtor’s preference for a comprehensive package.

The third is how much courts can fix. Debtors and secured lenders control when a case is filed, Miller said, which he called “almost intractable” absent a sharp penalty for filing late. Liability management exercises have also made capital structures more complicated.

On reform, Miller prefers flexibility to hard rules, wants judges to update how they analyze DIPs, and would treat the incumbent’s offer as a benchmark for adequate protection. The Skadden lawyers said DIP financing has evolved in ways that are not apparent from the text of Section 364 alone.

For now, lenders who already hold the debt are the ones lending most often, roll-ups are larger and arrive earlier, and fees are more complicated. In the cases discussed here, judges mostly approved, negotiated, or picked a winner, while occasionally saying no. Whether that is a system adapting or one losing its limits is unsettled, but Miller says judges need to be “super thoughtful” about how today’s decisions shape tomorrow’s DIP financings.