NEW YORK (Reuters) – The government could ease scarce bankruptcy financing by guaranteeing the loans companies take to restructure their operations, Blackstone Group (BX.N) co-restructuring head Arthur Newman suggested on Friday.
Bankruptcy financing, called debtor-in-possession or DIP financing, has been difficult for companies to find since the global credit crisis has caused lenders to pull back on all types of loans.
With few lenders in the market, many companies are paying borrowing costs that are three or four times higher than they were a year ago.
Getting the government involved could make the loans less expensive for companies that are already troubled, making it easier for them to restructure their operations rather than close them down.
“I think the U.S. government should guarantee DIPs,” Newman said during a press briefing. “That would sort of open up the market.”
DIP financing in the past had been an active sector of lending because the lenders are first in line to be paid back by the companies.
There is little risk with these loans and the government could charge a fee, Newman said, making them attractive investments for taxpayers.
“You start by saying we’re saving jobs and these companies can’t get financing,” Newman said. (Reporting by Caroline Humer and Emily Chasan; Editing by Gary Hill)