12 AN INTRODUCTION TO DIP FINANCING Jane Lee

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are affected either by the use of cash collateral under section 363 or by the grant of an equal
or senior lien to secure new financing under section 364.
v Whether an adequate protection payment would constitute an interest payment will be
affected by sections 502(b)(2) and 506(b). Section 502(b)(2) provides that “the court shall
allow such claim in such amount, except to the extent that . . . such claim is for unmatured
interest.” 11 U.S.C. § 502(b)(2). The general rule of section 502(b)(2) is modified by section
506(b) if a secured creditor is oversecured. Section 506(b) provides, “To the extent that an
allowed secured claim is secured by property the value of which, after any recovery under
subsection (c) of this section, is greater than the amount of such claim, there shall be allowed
to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges
provided for under the agreement or State statute under which such claim arose.” 11 U.S.C. §
506(b). The negative implication of section 506(b) is that a secured creditor is entitled to
interest only if its claim is oversecured. 11 U.S.C. § 506(b). Until the value of a secured
creditor’s security interest has been determined, the trustee will not agree to apply the periodic
cash payments to the secured creditor’s pre-petition claim.
vi Note that the safest course is to provide for the administrative expense priority in the order
approving the financing even if the new financing is to be secured by what appears to be an
adequate collateral package. See In re Sobiech, 125 B.R. 110, 115 (Bankr. S.D.N.Y. 1991)
(creditor granting a lien under sec. 364(c)(2) is not entitled to an administrative expense claim
for its deficiency claim); see also In re Mayco Plastics, Inc., 379 B.R. 691, 706 (Bankr. E.D.
Mich. 2008) (fact that the DIP lender held a superpriority claim under section 364(c)(1) did
not mean that it also held an administrative expense claim under section 364(a) or (b) absent
application for such additional relief).