Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the federal income tax consequences under Internal Revenue Code ("IRC" or "Code") §61(a)(12) arising from cancellation-of-debt income ("CODI") that may be triggered by the potential restructuring of the outstanding indebtedness of Thalassa Shipping & Logistics SA ("TSL") and Thalassa Americas Inc. ("TAI"), and to evaluate the available exclusions from

II. Factual Background A. Corporate Structure and Relevant Entities Thalassa Shipping & Logistics SA ("TSL") is a société anonyme organized under the laws of the Hellenic Republic, with its principal executive offices located at 42 Akti Miaouli, Piraeus 18538, Greece. TSL was founded in 1987 by the Kostandinos family and has grown to become one of the leading mid-market international shipping and logistics operators,

1. Senior Secured Credit Facility The senior secured credit facility was originally entered into on June 15, 2019, pursuant to a credit agreement among TSL (as borrower), TAI (as co-borrower with respect to the TLB tranche), Nordbank International AG (as administrative agent and collateral agent), and a syndicate of nine institutional lenders. The total original commitment was $685 million. As of September 30, 2022,

2. Mezzanine Notes The mezzanine notes were issued on June 15, 2019, and are held by Dralvecen Mezzanine Capital LLC ("BMC"), located at 600 Lexington Avenue, 22nd Floor, New York, New York 10022 (Rebecca Quimby, Senior Partner). The aggregate principal amount outstanding as of September 30, 2022 is $112.3 million, consisting of $100 million in original principal and $12.3 million in PIK interest that has been capita

3. Unsecured Notes TSL also has outstanding $50 million in unsecured notes, bearing interest at 8.25% per annum, payable semi-annually in cash. The notes were issued on March 1, 2020, and mature on March 1, 2025. The indenture trustee is Garrison Trust Company, located at 100 Wall Street, 16th Floor, New York, New York 10005. The notes bear CUSIP number 87265BAB5. TSL missed the December 1, 2022 interest payment of $

4. Intercompany Note TAI is the maker of a $76.4 million subordinated intercompany note payable to TSL. The note bears interest at 5.0% per annum and is subordinated to all external indebtedness of TAI. This note represents a key component of the intercompany financing arrangement through which TSL funded TAI's U.S. operations and capital expenditures.

5. Total Debt Summary The largest trade creditor is Olympian Fuel & Supply SA, with an outstanding balance of approximately $9.2 million as of September 30, 2022. C. Financial Condition and Valuation The TSL group has experienced a significant deterioration in financial performance and asset values over the course of 2022, driven by a combination of declining freight rates in the dry-bulk and container shipping segme

1. Out-of-Court Path (RSA) The out-of-court path would be implemented through a restructuring support agreement ("RSA") and would involve the following principal transactions: (a) Mezzanine Exchange: BMC would exchange its $112.3 million in mezzanine notes for (i) $60 million in new second-lien notes bearing interest at 10.0% PIK, with a maturity date of June 2028, and (ii) 15% of the equity in TSL. (b) Senior Secure

2. Chapter 11 Path If the out-of-court path proves unachievable — whether due to holdout creditors, valuation disputes, or other impediments — TAI would file a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. The Chapter 11 filing would involve the following elements: (a) DIP Facility: A $75

III. Legal Framework: CODI Under §61(a)(12) A. General Rule

Section 61(a)(12) of the Internal Revenue Code provides that gross income includes "income from the discharge of indebtedness." This principle is one of the most fundamental tenets of the federal income tax system and reflects the longstanding judicial and statutory recognition that a taxpayer who is relieved of an obligation to repay borrowed funds has realized an accession to wealth. A "discharge of indebtedness" o

Section 108(e)(4) of the Code provides that if a person related to the debtor acquires the debt of the debtor from a third party, the debtor is treated as having satisfied the debt for the acquisition price. This provision is designed to prevent related parties from acquiring distressed debt at a discount and then forgiving it without CODI recognition. The implementing regulations are found at Treas. Reg. §1.108-2. W

IV. Quantification of Potential CODI A. Mezzanine Note Exchange The mezzanine note exchange is the most significant potential source of CODI in the proposed restructuring. The relevant parameters for the CODI calculation are as follows: Adjusted Issue Price of Old Mezzanine Notes: The adjusted issue price of the existing mezzanine notes is $112.3 million, consisting of $100 million in original issue price plus $12.3

V. Section 108 Exclusions from CODI A. Overview of §108(a) Exclusions

Section 108(a)(1) of the Code provides that gross income does not include any amount that would otherwise be includible in income by reason of the discharge of indebtedness of the taxpayer if the discharge occurs under one of the following specified circumstances: (A) Title 11 case — the discharge occurs in a case under Title 11 of the United States Code (the Bankruptcy Code), and the taxpayer is under the jurisdicti

VI. Attribute Reduction Under §108(b) A. General Rule The exclusion of CODI under §108(a) is not a permanent exemption from tax. Rather, it is a timing mechanism that defers the tax impact of the discharge by requiring the taxpayer to reduce certain tax attributes that would otherwise be available to offset future income. Section 108(b)(1) provides that the amount of CODI excluded from income under §108(a) must reduc

1. Net operating losses (NOLs): Reduced dollar for dollar. This includes both the NOL for the taxable year of the discharge and any NOL carryovers to that year.

2. General business credits: Reduced by 33⅓ cents for each dollar of excluded CODI.

3. Minimum tax credits: Reduced by 33⅓ cents for each dollar of excluded CODI.

4. Capital loss carryovers: Reduced dollar for dollar. This includes both the net capital loss for the taxable year of the discharge and any capital loss carryovers to that year.

5. Tax basis of property: Reduced dollar for dollar, subject to the limitations of §1017 (discussed below).

6. Passive activity loss and credit carryovers: Reduced dollar for dollar for losses and 33⅓ cents per dollar for credits.

7. Foreign tax credits: Reduced by 33⅓ cents for each dollar of excluded CODI. The attribute reduction occurs at the beginning of the taxable year following the year of the discharge. This timing rule means that the taxpayer's attributes for the year of discharge are available to offset any CODI that is not excluded under §108(a), and the reduction applies to attributes carried into the subsequent year. The mandatory

Section 1017 governs the reduction of the tax basis of property when the taxpayer has excluded CODI under §108(a). Under the general rule of §108(b)(2)(E), basis reduction is fifth in the priority ordering — it applies only after NOLs, general business credits, minimum tax credits, and capital loss carryovers have been exhausted. However, §108(b)(5) provides an important election: the taxpayer may elect to apply the