Requiem for Cross-Collateralization

his article discusses the cross-collateralization provisions in DIP financing orders in the wake of the Eleventh Circuit’s opinion in Shapiro v. Saybrook Manufacturing Co. (In re Saybrook Manufacturing Co.). Specifically, this article explores section 364(e) of the Bankruptcy Code and whether it protects provisions in DIP financing orders relating to the lender’s prepetition collateral position and claim, and analyzes whether cross-collateralization is a legal DIP financing provision. This article concludes with a projection of what impact Saybrook may have on DIP financing orders, and argues that DIP financing orders will continue without interruption, but on a fairer basis.