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364(c). For both kinds of credit, Rule 4001 requires that a final hearing may not be commenced earlier than 15 days after service of the motion, and a preliminary hearing may authorize use of the credit only "to the extent necessary to avoid immediate and irreparable harm to the estate pending a final hearing." Rule 4001(b)(2) (cash collateral) & 4001(c)(2)(DIP loans).
The Dive
Typically a postpetition lender, whether under a DIP loan or through use of cash collateral, will not extend such credit unless at least the debtor agrees to the amount of prepetition debt outstanding, the validity and priority of the lien securing such debt, and that it is not subject to any setoff or preference or fraudulent conveyance attack. This is sometimes referred to colloquially as taking "the dive." Most courts seem to have concluded this may be necessary and appropriate for a debtor, after notice and a hearing, but expressly reserve such challenges for other parties such as a creditor's committee or perhaps a subsequently appointed trustee. As noted above, Delaware's new local rule generally requires 75 days' notice to parties in interest, and 60 days' notice after a creditors' committee is formed, for the dive to be enforceable against the estate and other parties in interest.
An alternative to a complete "dive" is to provide a "cap" on the amount of cash collateral that may be used to pay for investigation of the validity and priority of the lender's liens. At least one District Court has suggested that it is within a bankruptcy court's discretion to approve such a cap.
Cross-Collateralization
It is clearly permissible under § 364 for a postpetition loan to be secured by all of the debtor's assets, whether obtained pre-or postpetition. In this context "crosscollateralization" refers to extending such blanket collateralization to secure the lender's prepetition debt as well. There is no express authority for such an improvement in a postpetition lender's prepetition claim, but what should a court do when those are the only terms on which credit will be provided, and credit is essential to the debtor's survival?
Courts have debated whether such cross collateralization is permissible. It clearly cannot be approved ex parte, and it will require evidence and findings as to the exigent circumstances and the potential effect on other creditors. Some courts have held that it is not permissible. Others find it permissible in certain circumstances, such as where it appears the lender is already secured by all of the debtor's prepetition assets.
Carveouts
When there is a secured creditor secured by all of the postpetition assets of the estate (usually pursuant to a DIP financing order, because otherwise postpetition receivables
