DIP Roll-Ups, Priming Liens, and Superpriority Claims

Introduction

Three structural features make modern DIP financing economically attractive enough to compensate for the elevated risk of post-petition lending: roll-ups (which convert pre-petition debt to DIP debt and lift it from impaired-recovery treatment to par recovery), priming liens (which jump the DIP lender ahead of existing secured creditors on the same collateral), and superpriority claims (which elevate the DIP claim above all other administrative-expense claims). Each of these mechanisms is contested in nearly every modern DIP negotiation, with the UCC and minority creditors mounting increasingly aggressive challenges to terms they argue go beyond what the Bankruptcy Code's Section 364 standards permit.

The First Brands DIP in late 2025 became the canonical recent example of how aggressive these structures can be and how they generate court pushback. The company's $4.4 billion core DIP facility consisted of $1.1 billion of new money and a $3.3 billion roll-up of prepetition term loans (the $5.2 billion figure cited in some coverage reflects the total superpriority claim including fees and admin), a 3:1 roll-up ratio the official creditors committee called "unprecedented" and "unprincipled overreach" likely to "consume all unencumbered value." The committee further argued that potential fees on the rollup obligations were "conspicuously off-market" and might exceed $200 million. The court ultimately approved a modified version of the structure on November 6-7, 2025, but the fight illustrated how contested DIP economic terms have become.

This article walks through the three economic mechanisms in detail: the roll-up structure and its variants (one-time, creeping, full-rollup, partial-rollup), the priming lien mechanics under Section 364(d) and the adequate-protection requirements that constrain it, the superpriority claim under Section 364(c) and how it differs from priming liens, the prepetition lender defensive tactics that have evolved alongside aggressive DIP terms, and the UCC objection patterns that increasingly shape DIP outcomes.

DIP Roll-Up

A provision in a DIP credit facility that converts a portion of the lender's pre-petition debt to post-petition DIP debt, with the rolled-up portion receiving the special priorities of Section 364 (typically superpriority claim status, priming or senior liens, and post-petition treatment). The economic effect is that the rolled-up debt avoids the impaired-recovery treatment that prepetition unsecured or junior secured debt would otherwise receive at plan confirmation, instead recovering at par from plan distributions or being repaid in cash from emergence financing. Roll-ups are typically structured as a multiple of the new-money commitment (1:1 is conservative, 2:1 is common, 3:1 is aggressive). First Brands' $3.3 billion roll-up against $1.1 billion of new money represented a 3:1 ratio the UCC called "unprecedented." Red Lobster's $275 million DIP combined $100 million of new money with a $175 million roll-up at a 1.75:1 ratio.

Priming Lien (Section 364(d))

A senior lien on already-encumbered estate property, granted to a DIP lender ahead of existing secured creditors with the same collateral. Section 364(d) authorizes priming liens only if the bankruptcy court finds that (1) the debtor cannot obtain financing without granting the priming lien, and (2) the existing lienholder is "adequately protected" against any decline in collateral value. Adequate protection under Section 361 can take three forms: periodic cash payments equal to any decrease in collateral value, additional or replacement liens on other estate property, or any other relief providing the "indubitable equivalent" of the lender's interest. The trustee carries the burden of proof on adequate protection.

Superpriority Claim (Section 364(c)(1))

An administrative-expense claim that ranks ahead of all other administrative-expense claims under Section 503(b) and 507(a)(2). DIP loans are typically granted superpriority status, meaning the DIP claim gets paid before all other Chapter 11 administrative expenses (professional fees, U.S. Trustee fees, post-petition operating expenses) at plan confirmation or case conclusion. Section 364(c)(1) authorizes superpriority claims only if the debtor cannot obtain financing on a non-priority unsecured or admin-priority basis, with the court typically accepting the debtor's representation that no such financing was available based on the DIP shopping process.

The three mechanisms operate independently but typically appear together in modern DIPs. A typical DIP includes (1) superpriority claim status for the DIP loan, (2) priming or senior liens on substantially all estate property, and (3) a roll-up of some portion of the lender's prepetition debt into the DIP. The combination produces a post-petition position that is structurally senior to almost everything else in the case, with the rolled-up portion benefiting from those priorities even though it represents pre-petition debt.

Roll-ups are the single most economically consequential DIP feature for the participating lender. The mechanic converts prepetition debt to DIP debt, lifting the converted position from whatever recovery the prepetition class would have received (often 30-70% for unsecured, varying for secured) to par recovery as a DIP claim. The economic value of the roll-up therefore equals the impairment that the prepetition position would have suffered, which can be hundreds of millions of dollars on a large DIP facility.

Roll-up structures vary in several dimensions. The ratio (rolled-up debt to new money) ranges from 1:1 in conservative cases to 3:1 or higher in aggressive ones. The mechanic can be one-time at first-day approval, creeping (where prepetition debt rolls into the DIP gradually as new money is drawn), or final-only (where the full roll-up does not become effective until the second-day or final order). The scope can include the full prepetition first-lien tranche, only a specific portion (e.g., the prepetition revolver but not the prepetition term loan), or only debt held by lenders who participate in the new money.

The First Brands case generated extensive commentary on roll-up structure. The UCC's objection to the 3:1 roll-up argued that the structure deviated from established bankruptcy norms in both aggregate dollar amount and ratio, and that the off-market fees and aggressive milestone covenants together created a structure designed to produce a credit-bid sale to the DIP lenders rather than a fair plan process. The Delaware Court ultimately approved a modified version, but the public scrutiny of the terms reflects how contested roll-up structures have become. Other recent precedents include Ligado Networks' $939 million DIP ($497 million roll-up plus $442 million new money, roughly 1.1:1 ratio), Red Lobster's $275 million DIP (1.75:1 ratio), and Anthology's $1.6 billion EdTech DIP with significant roll-up components.

Priming liens under Section 364(d) are the most powerful collateral-based feature a DIP can include. The lien gives the DIP lender priority on collateral that already secures pre-petition debt, jumping the DIP lender ahead of the existing secured creditors. The structural effect is that the DIP claim gets paid out of the collateral first, with the existing secured creditor receiving whatever value remains after the DIP is satisfied.

The Section 364(d) approval standard requires two specific findings: (1) the debtor cannot obtain financing without granting the priming lien, and (2) the existing lienholder is adequately protected. The first prong is typically satisfied by reference to the pre-petition DIP shopping process: the RX bank's testimony that no acceptable alternative financing was available without priming. The second prong is more substantive, with the debtor required to demonstrate that the existing lienholder's interest will not lose value as a result of the priming.

In practice, contested priming DIPs are rare because most DIPs are structured to obtain consent from the prepetition first-lien lenders (often by giving those lenders the right to provide the DIP themselves). When priming is contested, courts typically require detailed adequate-protection packages, and the practical difficulty of demonstrating both prongs means most contested priming attempts fail. The result is that the priming-lien threat functions more as a negotiating lever than as a frequently-used structural mechanism: the prepetition first-lien lenders typically prefer to provide the DIP themselves rather than be primed by a third-party fund.

Superpriority claims under Section 364(c)(1) elevate the DIP claim above all other administrative expenses in the case. The mechanic is straightforward: at plan confirmation or case conclusion, the DIP claim gets paid before any other Chapter 11 administrative expenses (professional fees, U.S. Trustee fees, post-petition operating expenses). The superpriority status protects the DIP lender against the risk that the case proves administratively insolvent (where post-petition expenses exceed available estate value).

The Section 364(c)(1) approval standard requires the court to find that the debtor cannot obtain financing on a non-priority unsecured or administrative-priority basis. The standard is typically satisfied by reference to the DIP shopping process, with the court accepting the debtor's representation that no such financing was available. Courts almost never deny superpriority status for legitimate DIP financing because doing so would effectively prevent the debtor from obtaining any post-petition financing.

Interaction with the professional-fee carveout

Superpriority claims interact with the professional-fee carveout, a negotiated provision in nearly every DIP order that reserves a defined dollar amount of estate value for payment of the debtor's professional fees and (usually) the UCC's professional fees, ahead of even the DIP claim. The carveout amount is one of the most negotiated provisions in any DIP order: the DIP lender wants a small carveout (preserves more value for the DIP); the U.S. Trustee and the professional firms want a large carveout (ensures professional fees can be paid); the UCC wants a clearly defined carveout that it can rely on. Typical carveouts range from $5-25 million for mid-cap cases to $50-150 million for complex large-cap cases.

The aggressive evolution of DIP economic terms has prompted prepetition lenders to develop defensive tactics designed to preserve their structural priority and limit DIP terms that would dilute their recoveries. Several tactics have become standard.

Defensive DIP provision

Modern credit agreements increasingly include "defensive DIP" provisions that give the prepetition first-lien lenders the right to provide the DIP themselves on terms specified in the credit agreement (or on commercially reasonable terms determined post-default). The provision effectively prevents a third-party fund from priming the prepetition lien through a 364(d) DIP, because the prepetition lender can always provide the DIP itself.

Anti-roll-up language

Some agreements include explicit prohibitions on rolling up the prepetition debt at terms that would non-pro-rata benefit specific lenders. The provisions are still being refined in market practice but appear increasingly in newer credit agreements as a response to the non-pro-rata roll-up dynamic.

Cooperation agreements

As covered in the cooperation agreements article, creditor co-ops bind their signatories to act collectively in any restructuring, including DIP financing decisions. A co-op holding 50%+ of the prepetition first-lien tranche can effectively control whether a non-pro-rata DIP roll-up proceeds.

Adequate protection demands

When priming is proposed, prepetition lenders demand robust adequate-protection packages: cash interest payments, replacement liens, periodic principal paydowns, and information-sharing rights. The packages are negotiated alongside the DIP terms and represent significant economic value that the debtor must provide to the prepetition lender to obtain consent.

Beyond the three core economic mechanics, modern DIP orders contain several other negotiated provisions that materially affect estate value distribution. The professional-fee carveout (already discussed) reserves a defined dollar amount of estate value for debtor and committee professional fees ahead of the DIP claim. Carveout sizing is one of the most contested issues in any DIP order, with the U.S. Trustee, the debtor's professionals, and the UCC's professionals collectively pushing for larger carveouts and the DIP lender pushing for smaller. The carveout typically covers a defined burn rate (estimated monthly fees times a multiplier reflecting expected case duration plus a tail period) with specific triggers for when the carveout becomes accessible.

Avoidance action waivers

Avoidance action waivers are another contested provision. The Bankruptcy Code permits the trustee or debtor in possession to recover certain pre-petition transfers (preferences under Section 547, fraudulent transfers under Sections 548 and 544(b), and similar avoidance actions). Some DIP orders include waivers of these claims against the DIP lender, the prepetition first-lien lenders, or both. The U.S. Trustee and UCC almost always object to broad avoidance-action waivers because they remove potential recovery sources for unsecured creditors. Most negotiated DIP orders include carveouts for avoidance-action investigation by the UCC during a defined "investigation period" (often 60-90 days), preserving the UCC's ability to pursue claims against the DIP and prepetition lenders during the case.

Surcharge claims under Section 506(c)

Surcharge claims under Section 506(c) (which let the trustee or DIP recover from secured collateral the reasonable costs of preserving or disposing of that collateral) are another common subject of DIP-order waivers. The surcharge claim is sized at:

The surcharge runs against the secured creditor's collateral recovery rather than against the general estate, effectively transferring specific preservation costs to the party that benefits from them. Modern DIPs typically include 506(c) waivers as part of the package, with the UCC pushing back on broad waivers that would foreclose surcharge recovery for any post-petition activity benefiting the secured creditor.

The professional-fee carveout that runs alongside the surcharge mechanic is sized off the case's projected fee burn:

Typical carveouts cover 3-6 months of debtor and committee professional fees plus a $1-5M trustee cushion, sized to ensure that case professionals can be paid even if the DIP would otherwise consume all available estate value before the plan goes effective.

The case law around non-pro-rata roll-ups has crystallized through several recent rulings. ### American Tire Distributors (Delaware, November 19, 2024)

Judge Craig Goldblatt found that the proposed non-pro-rata roll-up likely violated the prepetition term loan credit agreement's pro-rata sharing requirement, and indicated that minority lenders might ultimately prevail in a challenge to the structure. Rather than issue a final adverse ruling, Goldblatt indicated he would require any DIP approval order to preserve the excluded lenders' rights to sue. The participating DIP lenders responded by abandoning the proposed term-loan roll-up, and a modified DIP was approved on November 22, 2024. The ruling established that non-pro-rata DIP roll-ups face serious challenge risk under prepetition credit agreement pro-rata sharing provisions, not that Section 364 permits them.

Anthology Educational (2025)

An ad hoc group of "first-out" lenders proposed a $100 million DIP with a 2:1 roll-up that included all first-out lenders except one (Vector Capital, the first-out RCF lender). Vector objected, citing ConvergeOne (the September 2025 District Court ruling on equal-treatment violation) and Serta. Anthology subsequently amended the DIP to include Vector on a pro-rata basis, and final approval followed. The case is widely cited as confirming that exclusive non-pro-rata DIPs face significant challenge under post-ConvergeOne equal-treatment scrutiny, with debtors increasingly opening DIP participation to all similarly situated lenders to avoid litigation risk.

Liberated Brands (2025)

The case used a "creeping roll-up" structure that gradually converted prepetition ABL debt to DIP obligations as the case progressed, rather than rolling up the full prepetition position at first-day or final approval. The creeping mechanic was designed to align the roll-up timing with operational milestones and to limit upfront UCC objections by phasing in the roll-up over time.

First Brands carveouts (November 2025)

Beyond the headline $3.3 billion roll-up, the First Brands DIP order included a $200 million carveout for administrative expense claimants senior to the roll-up obligations (in case of administrative insolvency) and a $250,000 UCC investigation budget. The carveouts addressed UCC concerns about the broader DIP structure while preserving the core economics of the roll-up. The court also accepted the Raistone and U.S. Trustee motions seeking independent investigation of the alleged factoring fraud, which led to the November 19, 2025 examiner appointment of Martin De Luca with a $7 million budget.

The UCC's role in DIP negotiation has expanded significantly in recent years, with committees increasingly mounting aggressive challenges to DIP terms they argue exceed what Section 364 standards permit. The First Brands UCC objection (calling the 3:1 roll-up "unprincipled overreach" likely to "consume all unencumbered value" and the fees "conspicuously off-market") is the canonical recent example, and the modified DIP order ultimately approved at the second-day hearing reflected partial UCC success in moderating the most aggressive terms.

Common UCC objection categories include:

Courts in Delaware, the Southern District of New York, and the Southern District of Texas have generally permitted aggressive DIP terms when supported by a robust DIP shopping process and adequate UCC representation, but the level of judicial scrutiny has clearly increased relative to earlier years. The Delaware Court's modifications to the First Brands DIP, the Azul DIP modifications preserving minority lender and UCC rights, and similar recent rulings collectively suggest that bankruptcy courts will police the most aggressive DIP terms even when the parties initially agree to them.

The DIP economic framework is the most consequential post-petition financial engineering in modern restructuring practice. The combination of roll-ups, priming liens, and superpriority claims produces a position that is structurally senior to almost everything else in the case and that captures par recovery on the prepetition debt that gets rolled up. The increasing UCC scrutiny and court pushback reflect a broader recognition that the DIP economic terms can produce outcomes for participating lenders that mirror the asymmetric recoveries seen in out-of-court LMTs, with the same "creditor-on-creditor violence" dynamics now playing out inside the bankruptcy court.