CTP CTP Cash Flow Management & Liquidity Solutions 2 — Questions and Answers
Question 1: DIP financing stands for:
- Direct Investment Program
- Debtor-In-Possession financing (Correct answer)
- Debt Issuance Protocol
- Default Insurance Plan
Correct answer: Debtor-In-Possession financing
DIP (Debtor-In-Possession) financing is credit extended to a company that has filed for Chapter 11 bankruptcy to fund operations during restructuring.
Question 2: Which of the following is typically the FIRST operational priority in a liquidity crisis?
- Paying dividends to shareholders
- Funding capital expenditures
- Meeting payroll obligations (Correct answer)
- Repaying subordinated debt
Correct answer: Meeting payroll obligations
Meeting payroll is the highest operational priority in a liquidity crisis because failure to pay employees triggers immediate operational collapse and legal consequences.
Question 3: A 'borrowing base certificate' in asset-based lending (ABL) determines:
- The company's credit rating
- The amount a company can borrow against eligible collateral (Correct answer)
- The interest rate on a revolving credit facility
- The company's enterprise value
Correct answer: The amount a company can borrow against eligible collateral
A borrowing base certificate calculates the maximum loan amount available under an ABL facility based on the value of eligible receivables and inventory.
Question 4: What is a 'springing cash dominion' provision in a credit agreement?
- A covenant that triggers dividend restrictions
- A lender's right to sweep cash into a controlled account when availability falls below a threshold (Correct answer)
- A cross-default provision linking multiple facilities
- A provision requiring cash collateral for letters of credit
Correct answer: A lender's right to sweep cash into a controlled account when availability falls below a threshold
Springing cash dominion gives lenders the right to take control of cash flows when availability under a revolving credit falls below a specified threshold.
Question 5: Which technique involves selling receivables to a third party at a discount to obtain immediate cash?
- Securitization
- Factoring (Correct answer)
- Sale-leaseback
- Rights offering
Correct answer: Factoring
Factoring involves selling accounts receivable to a factor (third party) at a discount in exchange for immediate cash, improving short-term liquidity.
Question 6: In cash flow forecasting, 'minimum cash balance' refers to:
- The cash balance at fiscal year end
- The lowest acceptable cash level needed to operate without disruption (Correct answer)
- The average daily cash balance
- The cash held in restricted accounts
Correct answer: The lowest acceptable cash level needed to operate without disruption
The minimum cash balance is the floor level of cash required to maintain operations, pay obligations, and avoid technical defaults under credit agreements.
CTP CTP Cash Flow Management & Liquidity Solutions 2
DIP financing stands for: