Given the high number and size of bankruptcies predicted to occur during 2009, hedge fund managers see an interesting opportunity in distressed investing generally, and in particular in providing debtor-in-possession (DIP) financing to companies reorganizing under chapter 11 of the Bankruptcy Code.  Extending or continuing DIP loans may give rise to legal obligations, in particular when the lender has or during the term of the DIP loan acquires an equity interest in the bankrupt borrower.  While the law does not prohibit ownership of both equity and debt of bankrupt company, investment in various levels of the capital structure of a chapter 11 debtor may require certain disclosures, special precautions with respect to information acquired as a lender and special care with respect to actions taken as an equity owner (especially a majority owner).  We discuss certain legal considerations for hedge funds in connection with simultaneous investments in equity of a chapter 11 debtor and participation in a DIP loan to the same debtor.