Paradox’s proposed DIP loan draws objection from prepetition lender

By Sarah Lizee

Olympia, Wash., June 26 – Paradox Resources, LLC’s motion seeking approval of a $13.8 million debtor-in-possession term loan facility provided by investment funds managed by Legalist, Inc. drew an objection from prepetition lender Washington Federal Bank, according to documents filed Sunday with the U.S. Bankruptcy Court for the Southern District of Texas.

WaFed said it objects because the proposed financing doesn’t provide adequate protection to the prepetition lender.

The lender also said the budget for the proposed sale process is “unnecessarily expensive” and will likely result in diminished value for the estate.

As previously reported, Paradox had said that WaFed was unwilling to provide the debtors with DIP financing.

However, WaFed said it has approached the debtors with an offer of interim funding in the amount of $1.5 million.

The lender said this would be enough for the debtors to obtain a stalking horse bidder.

WaFed said that, unlike the currently proposed DIP financing, its offer wouldn’t require any additional fees other than its contractual interest under the current loan agreement.

The lender said it would consider funding the remaining sales process, subject to the result of the stalking horse process and other matters discussed with debtors.

However, the debtors have not accepted this alternative.

DIP financing terms

The proposed DIP facility is set to mature in six months and bear interest at the U.S. prime rate plus 665 basis points. Following an event of default, interest will rise by another 475 bps.

The company is seeking interim access to $4.5 million of the facility and is also seeking access to cash collateral.

Paradox Resources is a Houston-based midstream company primarily focused on helium processing and carbon capture, utilization and sequestration. The company filed bankruptcy on May 22 under Chapter 11 case number 23-90558.

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