Special situations finance is a broad category of private credit that addresses financing needs that don't fit neatly into traditional lending boxes. Rather than following standardized underwriting criteria, special situations lenders excel at structuring around complexity — distressed assets, litigation risk, unusual collateral, transition periods, and other scenarios where speed and creativity are as important as credit analysis.
Bridge loans are among the most common special situations products. A bridge loan provides short-term financing — typically six months to two years — to cover a gap between a company's immediate capital need and its ability to access permanent financing. Bridge loans are used in M&A transactions (bridging the gap between signing and closing a bond deal), CRE transitions (funding a property while it stabilizes before a permanent mortgage is secured), and corporate liquidity events (covering expenses during a pending asset sale). Bridge loans are priced at premium rates reflecting their short-term, higher-risk nature.
NAV (Net Asset Value) facilities are credit lines extended to private equity or private credit funds, secured by the fund's portfolio of underlying investments. The borrowing base is calculated as a percentage of the fund's NAV — effectively lending against the portfolio as collateral. Fund managers use NAV facilities for portfolio company follow-on investments, distributions to LP investors, or liquidity management. The risk profile depends heavily on the quality and diversity of the fund's portfolio.
Rescue financing — also called rescue lending or lifeline credit — provides emergency capital to companies facing imminent distress, typically at expensive terms in exchange for security, structural seniority, and equity-like upside. Rescue lenders accept significant credit risk but also command terms that provide substantial protection and potential returns.
DIP (Debtor-in-Possession) financing is a specialized form of rescue finance provided to companies that have already filed for Chapter 11 bankruptcy protection. DIP lenders receive super-priority status — above even pre-petition secured creditors in the bankruptcy waterfall — and typically earn fees and rates commensurate with the risk.