Banks Aren't Stupid
I don't think they would have secured 4 mil if someone thought they won't make it.
Of course they would! You have no idea what the terms of the financing were. Given AIPN's deteriorating financial condition, the terms of the financing were probably pretty onerous, but we'll have to wait for the SEC filing before we know for sure.
FYI, many banks actually target companies in financial distress, and a number of them even happily work with companies in Chapter 11 bankruptcy. For example, many offer a product called DIP financing. DIP stands for Debtor in Possession, and refers to a Chapter 11 case which has no bankruptcy trustee appointed (i.e., the "Debtor" is still in "possession" or control of the company's assets instead of a trustee).
Generally speaking, as long as a funder: (1) is fully secured by adequate collateral which can make them whole in the case of a workout or liquidation, (2) receives a premium interest rate to compensate for the higher risk profile of the client, and (3) maintains control over further asset base deterioration (e.g., through availability terms &/or restrictive loan covenants), many banks will happily lend companies like AIPN money. This is a common practice called asset-based lending, and a number of companies specialize in it. I suspect they've been beating down the door trying to get in.
Unfortunately for shareholders, an asset-based lender always maintains a position ahead of unsecured creditors in the event of a bankruptcy, and unsecured creditors always maintain a position ahead of equity holders. In other words, there's still no guarantee of long term viability, and AIPN shareholders are still at the bottom of the distribution totem pole.
Razor |
