What aspect of a distressed company's capital structure is typically prioritized in financing?

DIP (Debtor-in-Possession) financing is prioritized in the capital structure of a distressed company because it is crucial for the company's operations during its bankruptcy proceedings. This financing allows the company to continue operating while undergoing restructuring, providing the necessary liquidity to maintain essential functions such as payroll, suppliers, and operational costs.

In a bankruptcy context, DIP financing is often given a senior position in the capital structure, meaning it is repaid before most other debts, including unsecured creditors, because it is viewed as a critical lifeline for the struggling business. This prioritization is necessary to reassure lenders and investors that new funds will be secured and that the company has the ability to execute its reorganization plan successfully.

By contrast, other aspects, such as equity interests or common stock valuations, are generally at a higher risk level and may not provide immediate liquidity or assurance of recovery during the restructuring process. Long-term asset valuations can be significant in assessing the overall viability of the company post-restructuring, but they do not play a crucial role in securing immediate financing necessary for operational continuity.