Answers / Restructuring

What is a roll-up in DIP financing, and why is it controversial?

A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

A roll-up lets a DIP lender convert (roll up) some of its existing pre-petition debt into the new, super-priority DIP facility — so old, lower-ranking exposure gets elevated to the top of the priority stack, often at a favorable ratio to new money advanced. Lenders demand it as a condition of providing rescue financing. It's controversial because it improves the existing lender's recovery on already-extended debt at the expense of other creditors, without bringing entirely new money for the rolled portion — effectively jumping the queue. Courts scrutinize roll-ups: they may approve where the DIP is genuinely necessary, no better financing is available, and the terms are fair, but junior creditors and the estate often object that the roll-up over-rewards the incumbent and erodes their recoveries.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Converts pre-petition debt into super-priority DIP
  • ✓Elevates old exposure to top of waterfall
  • ✓Controversial: helps incumbent at others' expense, not all new money
  • ✓Courts weigh necessity, alternatives, fairness

COMMON MISTAKES

  • ✗Thinking roll-up is all new money
  • ✗Ignoring prejudice to junior creditors
  • ✗Assuming automatic court approval

Reading isn't the same as answering under pressure.

Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.

TRY QUICKFIRE →Or train full Restructuring case simulations →

RELATED QUESTIONS