The agreement of a lender to make advances or set aside (“carve out”) some of its collateral to pay the fees of debtor’s counsel and financial advisors, and counsel and financial advisors to a committee. The carveout is often seen as the “toll” the lender must pay to use the bankruptcy estate to obtain a more profitable liquidation of its collateral. The terms of a carveout are usually negotiated in connection with a DIP financing agreement or cash collateral order.
Bankruptcy Code § 506(c). See also Cash Collateral Order, DIP Financing Order, Surcharge. And for a very different kind of “carveout,” see Nonrecourse Carveout.