Then there’s Sears Canada, the piece of Eddie Lampert’s sprawling retail empire that is liquidating after seeking creditor protection in June. Getting a piece of its DIP loan proved a lucrative bet for middle-market lender Great American Capital Partners, which is being paid a rate of more than 12 percent on a C$150 million loan ($117 million). That’s roughly 1.5 percentage points more than what it had earned as a lender to the retailer prior to bankruptcy.

Some Risks

Wells Fargo agreed to extend as much as C$300 million in DIP funding to Sears Canada through an asset-based facility at roughly 6 percent, also about 1.5 percentage points more than what it earned on similar debt prior to bankruptcy.

Joel Shaffer, an external spokesman for Sears Canada, declined to comment, and a representative for GACP didn’t respond to requests for comment.

DIPs don’t come without risks. If a restructuring plan fails or takes longer to get court approval, lenders can find themselves waiting as the company’s valuation deteriorates, said Sharon Bonelli, an analyst at Fitch Ratings. But the lenders “rank before anyone else for repayment so they nearly always get 100 percent recovery on bankruptcy. And DIPs don’t default.”

As shoppers increasingly ditch malls and buy online, retailers have been turning to bankruptcy courts to cut their massive debt loads. They took on that debt during a period of relatively cheap credit that fueled leveraged buyouts by private equity firms. Retail defaults are now running at a 7.1 percent rate -- more than double the rate of borrowers overall.

One compelling angle for DIP lenders is that some retailers are opting to file for bankruptcy before they run out of cash, bolstering their value for the most senior creditors, said Lynn Whitmore, managing director of retail finance at Wells Fargo & Co.

“For existing bank lenders, there’s a profitability consideration that can be attractive to us,” she said.

Outside Retail

DIP lenders are finding opportunities outside of retail as well. And the market has been attracting less traditional players. Private equity firms including Apollo Global Management LLC have increasingly made their mark.