Paradox wants to use buyer deposit as alternative DIP financing

By Sarah Lizee

Olympia, Wash., Nov. 7 – Paradox Resources, LLC is seeking court approval to use a $1.1 million deposit from proposed purchaser GNG Partners, LLC as an alternative form of debtor-in-possession financing, according to an emergency motion filed Monday with the U.S. Bankruptcy Court for the Southern District of Texas.

The relief requested in the motion is contingent on the court’s approval of the proposed sale of the debtors’ assets to GNG for about $17.5 million.

Paradox said that using the $1.1 million deposit will allow it to sustain the minimum level of operations needed for it to close the sale by Dec. 29.

The facility would be set to mature when the sale closes, subject to extension.

The financing would not bear interest or fees.

Absent any commitment from former DIP lender Washington Federal Bank to provide further financing, Paradox said it must rely on the buyer to step up as the proposed DIP lender and commit to fund the Chapter 11 cases through closing of the sale.

Washington Federal Bank filed a limited objection to the motion on Tuesday, saying that while it does not oppose the DIP loan in general, it does object to the proposed priming of the bank to pay disputed professional fees.

Under the terms of the proposed DIP arrangement, the GNG is permitted to prime all $40 million of Washington Federal Bank’s prepetition and post-petition DIP financing claims.

The debtors argue that the arrangement is necessary to fund operations until closing, but Washington Federal Bank said, per the debtor’s budget, operating cash flow nets to a required infusion of under $1 million.

The proposed DIP terms also do not provide any assurances or safeguards that would prevent the buyer from declaring a default and attempting to seize substantially all the estate’s assets for the proposed DIP loan amount, the bank said.

“The proposed DIP loan is set to mature on the earlier of certain dates, but notably does not require the consummation of sale,” Washington Federal Bank said.

“Even if a sale were to occur, the amount of the proposed sale is significantly less than the amount owed to the bank.

“Therefore, given the amount of disputed professional and administrative costs at closing, for which additional detail is needed, there is no scenario where the proposed DIP loan, if permitted to prime WaFd, offers any adequate protection to WaFd.”

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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