IPI creditors file opposition to IPI’s $6.6M DIP financing

A number of Imperial Pacific International (CNMI) LLC creditors have banded together in opposition of the casino investor’s request for debtor-in-possession financing for the remaining $6.6 million of the $7 million loan IPI says it has secured.

The official committee of general IPI unsecured creditors, through attorneys Aram Ordubegian and Christopher K.S. Wong, have filed a supplemental opposition to the final approval of the motion for order authorizing DIP financing for the remaining $6.6 million of the $7-million loan IPI has allegedly secured.

Essentially, IPI managed to secure a $7-million loan from a Hong Kong-based financing institution. However, DIP financing through the court is needed to ensure that should IPI fail in its attempt to restructure and must liquidate all assets to pay off creditors, the lender and its loan is given priority.

According to the motion, during the May 30 hearing, the court granted IPI’s motion on an interim basis, authorizing IPI to obtain an initial advance of $400,000 of the $7 million from Mr. Loi Lam Sit.

In doing so, the court emphasized the need for IPI to supplement its motion to address a number of concerns which were, and continue to be, shared by the committee, the CNMI government, and other parties before final approval of the loan can be properly evaluated.

The committee states that at the top of the list of concerns is the lack of evidence justifying the need for the remaining $6.6 million for the debtor’s reorganization, and the concealed nature of the lender’s identity and connection to this case.

“It must be reiterated the debtor has the burden of proof, by a preponderance of the evidence, to demonstrate that an additional $6.6 million in financing from this obscure source is ‘actual’ and ‘necessary’ to the bankruptcy estate. Yet, with creditors eagerly waiting, the debtor only submitted a one-and-a-half page, woefully deficient declaration from the Lender that neglects to address crucial concerns regarding the lender’s background, his relationship with the debtor and its insiders, and his motives for providing the DIP loan. Instead of clarifying these issues, it raises further questions,” said the motion.

The committee says that IPI has provided limited and vague information about the lender, mentioning his status as a businessman in Hong Kong and his lack of familial ties to Ji Xiaobo and Cui Lijie.

“However, it fails to include his contact information, disclose any prior relationship with Mr. Ji or Ms. Cui, or explain why Mr. Ji approached him specifically for the loan. This scant detail does not provide the court and interested parties with sufficient basis to determine that the Lender is acting in good faith. Further, a revised loan agreement addressing the court’s concerns is nowhere to be found. It has become evident that the debtor has not been forthcoming with the court, consistently providing only minimal information regarding the proposed Lender’s background and the source of the DIP funds,” said the motion.

The committee argues that the lender’s refusal or inability to explain his motive for extending $7 million to IPI makes him unsuitable as a DIP lender in this proceeding.

“Therefore, the debtor must seek alternative funding sources, as mandated by Section 364 of the Bankruptcy Code. In granting interim relief for the initial advance of $400,000, the court recognized that certain basic stabilizing expenses had to be paid, including utilities, insurance, and rent. However, the debtor has not provided justification for how the additional $6.6 million loan will fund a plan of reorganization,” said the motion.

The creditors noted that according to IPI, $6.15 million of the remaining $6.6 million is to pay the Commonwealth Casino Commission and the CNMI Treasury.

“This figure is based entirely on the false assumption that the CCC and the CNMI Treasury have or will agree to such a settlement amount. However, the CCC has unequivocally stated that no settlement is being negotiated, let alone agreed upon. Consequently, approving the DIP loan on a final basis is premature, unwarranted, and counter to the interest of the estate and creditors,” said the motion.

Finally, the committee of creditors state that IPI’s bankruptcy has now been pending for two months and the casino investor has provided no indication that it is able to reorganize.

“According to the CCC, the debtor is unable to reinstate its casino license and resume operations, and thus, the debtor’s purported purpose for the DIP facility is nonexistent. As a result, approval of this motion on a final basis would only result in an added layer of administrative expenses in the form of a $7-million claim to a potential insider, to the great detriment to the estate’s general unsecured creditors. As discussed in detail herein, the committee objects to the approval of the DIP loan on a final basis, as it is unnecessary and inappropriate at this time. Practically speaking, it would be more prudent to first review the debtor’s plan and then consider a new DIP loan if it is needed. The committee is prepared to take all necessary steps to preserve the value of the assets and to ensure the proper reorganization and administration of the estate if required,” said the motion.

IPI, the committee of creditors, and other parties are set to appear in the U.S. District Court for the NMI on June 21 to discuss the matter.