CONFIDENTIAL — ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT PRIVILEGED This document has been prepared by Calderwood & Harkness LLP as counsel to the Borrower and is protected by the attorney-client privilege and the work product doctrine. Any disclosure, distribution, or copying of this document or any portion hereof to any person other than the intended recipients is strictly prohibited.
ANNOTATED MARKUP OF SUMMARY OF TERMS AND CONDITIONS
$150,000,000 SENIOR SECURED REVOLVING CREDIT FACILITY
THALASSA SHIPPING & LOGISTICS SA as Borrower
March 27, 2023
Prepared by:
CALDERWOOD & HARKNESS LLP Banking & Finance Practice Group 425 Park Avenue, New York, NY 10022
Sophie Tremblay, Senior Associate Daniel Obi, Associate
Supervised by: Ian Blackwood, Partner
Source Document: Summary of Terms and Conditions (Term Sheet) circulated by Meridian Atlantic Bank, National Association, dated March 20, 2023.
Client: Thalassa Shipping & Logistics SA
Matter Number: 1044-00002
Format: This document constitutes a redline/annotated markup of the Term Sheet referenced above. Borrower's proposed textual revisions are shown in tracked changes (insertions and deletions). Borrower's counsel's commentary, explanatory notes, and negotiation positions are presented in clearly designated comment blocks labeled [C&H COMMENT]. All revisions and comments are subject to further review and discussion.
INTRODUCTORY NOTE FROM COUNSEL
To: Aris Komnenidis, General Counsel, Thalassa Shipping & Logistics SA Dimitrios Pantazis, Chief Financial Officer, Thalassa Shipping & Logistics SA
From: Sophie Tremblay, Senior Associate, Calderwood & Harkness LLP Daniel Obi, Associate, Calderwood & Harkness LLP
Supervised by: Ian Blackwood, Partner, Calderwood & Harkness LLP
Date: March 27, 2023
Re: Annotated Markup of Summary of Terms and Conditions — $150,000,000 Senior Secured Revolving Credit Facility
Dear Aris and Dimitrios,
Enclosed please find our annotated markup of the Summary of Terms and Conditions (the "Term Sheet") circulated by Meridian Atlantic Bank, National Association ("Meridian Atlantic" or "MAB") on March 20, 2023, in connection with the proposed $150,000,000 senior secured revolving credit facility (the "Facility") to be provided to Thalassa Shipping & Logistics SA ("TSL" or the "Borrower").
This markup reflects our preliminary comments and proposed revisions to the Term Sheet. Our comments address legal, structural, and commercial points that we believe should be raised with the Lenders and their counsel prior to or during preparation of the definitive credit agreement and related documentation. We note, however, that all comments herein are subject to your further review, and we welcome any input from TSL management on commercial or strategic points before we transmit a consolidated set of comments to lender's counsel.
This markup is being prepared pursuant to, and consistent with, the terms of the Meridian Atlantic Mandate and Fee Letter dated February 14, 2023 (the "Mandate Letter"), which governs Meridian Atlantic's engagement as Sole Lead Arranger, Sole Bookrunner, and Administrative Agent for the Facility. Except as otherwise expressly noted herein, the economic terms reflected in this markup are consistent with the terms agreed upon in the Mandate Letter.
All terms herein are subject to negotiation of definitive documentation. Nothing in this markup shall constitute a binding commitment by the Borrower, the Lenders, or any other party. The summary of terms set forth in the Term Sheet is intended as a basis for discussion and does not create any binding obligations except as expressly set forth in the Mandate Letter.
We note that Whitmore, Jennings & Alcott LLP ("WJA"), acting as counsel to the Lenders, will be responsible for preparing the initial draft of the Credit Agreement and related security documents based on the agreed Term Sheet. We understand that the lead WJA attorneys on this matter are Harrison Caldwell (Partner) and Priya Subramanian (Associate). We anticipate that WJA will circulate the first draft of the Credit Agreement in early April 2023, and we will promptly review and respond to that draft upon receipt.
We remain available to discuss any aspect of this markup at your convenience.
Very truly yours,
Calderwood & Harkness LLP
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ANNOTATED TERM SHEET MARKUP
The text below follows the structure of the Term Sheet as circulated by Meridian Atlantic on March 20, 2023. Borrower's proposed textual revisions are shown as tracked changes (insertions marked as [ADDED] and deletions marked as [DELETED]). Calderwood & Harkness commentary appears in indented blocks designated [C&H COMMENT].
SECTION 1: PARTIES
1.1 Borrower. Thalassa Shipping & Logistics SA (the "Borrower" or "TSL"), a Société Anonyme (Anonimi Etairia) organized and existing under the laws of the Hellenic Republic.
Registered Office: 14 Akti Miaouli, Piraeus 185 35, Greece.
[C&H COMMENT]: We request confirmation from TSL management and from our Greek local counsel, Pavlopoulos & Drakos Law Firm, that the Borrower entity is TSL at the parent level (i.e., the ultimate holding company of the Thalassa group) and not a subsidiary or intermediate holding entity. This is important for ensuring that the credit support structure is properly designed and that the representations and covenants in the Credit Agreement apply at the appropriate level of the corporate structure.
For identification purposes in the definitive Credit Agreement, we recommend that the following registration details be referenced: TSL's Greek Tax Identification Number (AFM) is 094728361 and its General Commercial Registry (GEMI) Registration Number is 143209501000. Including these identifiers will avoid any ambiguity as to the legal entity serving as Borrower, particularly given that TSL operates through a network of subsidiaries across multiple jurisdictions.
1.2 Guarantors. Each of the following entities (collectively, the "Guarantors") shall unconditionally guarantee all obligations of the Borrower under the Credit Agreement and the other Loan Documents:
1. Thalassa Dry Bulk Holdings Ltd., a private limited company organized under the laws of the Republic of Cyprus — serving as the intermediate holding company for the Borrower's dry bulk fleet and related vessel-owning subsidiaries.
2. Thalassa Tanker Operations Ltd., a private limited company organized under the laws of the Republic of the marshall Islands — serving as the operating subsidiary for the Borrower's tanker fleet.
3. Thalassa Logistics International Ltd., a private limited company organized under the laws of the Republic of Cyprus — serving as the Borrower's integrated logistics and chartering subsidiary.
[C&H COMMENT — Scope of Guarantor Obligations]: The Term Sheet identifies only the three named subsidiaries above as Guarantors. We request clarification from Meridian Atlantic and WJA as to whether additional vessel-owning subsidiaries (single-purpose vehicles or "SPVs") that sit below these three intermediate entities in the corporate structure will also be required to provide direct guarantees of the Facility obligations. The Borrower's strong preference is that guarantees be limited to these three named subsidiaries, with the obligations of the underlying vessel-owning SPVs addressed solely through (a) pledges of 100% of the equity interests in each SPV (see Section 4.5 below) and (b) first-priority ship mortgages on the Mortgaged Vessels (see Section 4.1 below). Requiring direct guarantees from each individual vessel-owning SPV would impose a significant administrative and cost burden (particularly given the need for local law opinions in each relevant jurisdiction) without materially improving the Lenders' credit position, given the comprehensive collateral package described in Section 4.
[C&H COMMENT — Multi-Jurisdictional Guarantor Structure]: We note that the guarantor structure involves entities organized in three separate jurisdictions — Greece (the Borrower), Cyprus (Thalassa Dry Bulk Holdings Ltd. and Thalassa Logistics International Ltd.), and the Republic of the marshall Islands (Thalassa Tanker Operations Ltd.). Each Guarantor's capacity and authority to provide a guarantee of the Facility obligations will need to be confirmed under the applicable local law of its jurisdiction of organization, including any limitations on upstream or cross-stream guarantees, corporate benefit requirements, and any applicable financial assistance restrictions.
We have engaged Pavlopoulos & Drakos Law Firm (lead partner: Theodoros Pavlopoulos, Senior Partner) as Greek local counsel to advise on matters of Greek law relating to the Borrower's corporate authority, the enforceability of the Greek law aspects of the transaction, and the perfection of any security interests governed by Greek law. Separate local counsel will need to be identified and engaged for Cyprus and the marshall Islands. We will coordinate the engagement of local counsel for these jurisdictions and will confirm the identity of such counsel in due course. We anticipate that the Cyprus counsel engagement will be completed within the next two weeks and that marshall Islands counsel can be identified and retained prior to commencement of the documentation phase.
1.3 Administrative Agent
Meridian Atlantic Bank, National Association (the "Administrative Agent" or "Agent"), 600 Lexington Avenue, 38th Floor, New York, New York 10022.
Meridian Atlantic shall also serve as Sole Lead Arranger and Sole Bookrunner for the Facility.
Relationship Manager: Catherine Hsiang, Managing Director, Shipping Finance Group.
[C&H COMMENT]: No comment on the designation of Meridian Atlantic as Administrative Agent, Sole Lead Arranger, and Sole Bookrunner. This is consistent with the Mandate Letter and is standard for a sole-arranger structure of this type.
1.4 Collateral Agent / Security Trustee
Pinnacle Trust & Agency Services Inc. (the "Collateral Agent" or "Security Trustee"), a Delaware corporation, One Liberty Plaza, 44th Floor, New York, New York 10006.
The Collateral Agent shall hold the security interests created under the Security Documents for the benefit of the Secured Parties in accordance with the terms of a Collateral Agency Agreement to be entered into among the Administrative Agent, the Collateral Agent, the Lenders, and the Borrower.
[C&H COMMENT]: We request confirmation that Pinnacle Trust & Agency Services Inc. is acceptable to all syndicate Lenders as the Collateral Agent. Given that certain syndicate Lenders (e.g., Nordkapp Maritime Finance AG and Eastbourne Capital Partners LLP) are organized outside the United States, we wish to confirm that there are no regulatory or institutional impediments to Pinnacle Trust acting in this capacity.
Additionally, we request that the form of the Collateral Agency Agreement be circulated by WJA together with the first draft of the Credit Agreement, so that the terms governing the relationship among the Administrative Agent, the Collateral Agent, and the Lenders with respect to the collateral can be reviewed and negotiated concurrently with the Credit Agreement.
1.5 Lenders (Proposed Syndicate)
The Facility shall be provided by the following Lenders (collectively, the "Lenders") with the respective commitments set forth below:
[C&H COMMENT]: The individual Lender commitments set forth above are confirmed per the Mandate Letter. However, we note that the syndicate Lender commitments (i.e., those of Nordkapp Maritime Finance AG, Clearwater Commercial Lending LLC, and Eastbourne Capital Partners LLP) remain subject to the respective credit approval processes of each such institution and are not yet formally confirmed as of the date of this markup (March 27, 2023). Meridian Atlantic, as Sole Lead Arranger, has indicated that it expects all syndicate commitments to be confirmed by mid-April 2023, but the Borrower should be aware of the risk that one or more syndicate Lenders may not receive credit approval or may seek to modify the terms of their participation.
We recommend that TSL confirm with Catherine Hsiang at Meridian Atlantic the status of the syndication process and the timeline for obtaining formal commitment letters from each syndicate Lender. In the event that any syndicate Lender does not confirm its commitment, the Mandate Letter may require Meridian Atlantic to underwrite the unconfirmed portion, subject to the terms and conditions of the Mandate Letter.
SECTION 2: FACILITY TERMS
2.1 Type of Facility
Senior secured revolving credit facility (the "Facility").
[C&H COMMENT]: No revision. The characterization of the Facility as a senior secured revolving credit facility is consistent with the Mandate Letter and with the Borrower's financing objectives.
2.2 Facility Amount
$150,000,000 (One Hundred Fifty Million United States Dollars) (the "Total Commitments").
[C&H COMMENT]: No revision. The Total Commitments of $150,000,000 represent an increase of $25,000,000 over the existing revolving credit facility with Harborstone National Bank, which has a total commitment amount of $125,000,000. The incremental $25,000,000 will provide TSL with additional liquidity and working capital capacity to support the growth of its fleet operations and logistics business.
2.3 Purpose. The proceeds of the Facility shall be used to:
(a) refinance in full the existing $125,000,000 revolving credit facility provided by Harborstone National Bank (pursuant to that certain Credit Agreement dated November 15, 2018, as amended by the First Amendment thereto dated June 30, 2020 and the Second Amendment thereto dated March 1, 2022, maturing November 15, 2023) (the "Existing Credit Facility"); and
(b)
(c)
(d) .
[C&H COMMENT]: We have proposed that the purpose clause be broadened to expressly include (i) "Permitted Acquisitions" (which will be defined in the Credit Agreement to encompass vessel acquisitions satisfying specified conditions) and (ii) "payment of fees, costs, and expenses in connection with the transactions contemplated hereby" (a standard formulation that ensures the proceeds of the initial borrowing can be used to fund closing costs without creating a technical purpose violation). These additions are customary for revolving credit facilities in the shipping sector and reflect the Borrower's operational use of the Facility.
[C&H COMMENT — Harborstone Payoff]: The complete payoff and termination of the Existing Credit Facility with Harborstone National Bank will be a condition precedent to the initial borrowing under the Facility (see Section 11 below). The Borrower's contact at Harborstone for purposes of obtaining the payoff letter and arranging the release of all liens and security interests is Philip Rennert, Director, Structured Shipping Finance, Harborstone National Bank, 350 Park Avenue, 20th Floor, New York, NY 10022. We recommend that TSL initiate discussions with Mr. Rennert promptly to ensure timely delivery of the payoff letter and lien releases on or before the anticipated closing date.
2.4 Sublimits.
2.4.1 Letter of Credit Sublimit. Up to $20,000,000 of the Facility may be utilized in the form of letters of credit (each, a "Letter of Credit" or "LC"; collectively, "Letters of Credit").
[C&H COMMENT]: The Term Sheet as circulated is silent on the types of Letters of Credit that may be issued under the Facility. We have added language clarifying that both standby letters of credit and commercial/documentary letters of credit (trade LCs) should be available under the LC sublimit. Trade LCs are essential for TSL's day-to-day logistics operations, particularly in connection with shipments across Mediterranean and Black Sea trade routes. Restricting the LC sublimit to standby LCs only would materially impair the Borrower's ability to use the Facility for its intended business purposes.
[C&H COMMENT — LC Fee Mechanics]: The Term Sheet omits any specification of the LC issuance fee structure. We request that the following LC fee mechanics be incorporated:
• LC participation fee: equal to the applicable SOFR margin on the face amount of outstanding Letters of Credit, payable to the Lenders pro rata based on their respective commitments, accruing daily and payable quarterly in arrears.
• LC fronting fee: 12.5 basis points per annum on the face amount of each outstanding Letter of Credit, payable solely to the issuing bank (which we understand will be Meridian Atlantic), accruing daily and payable quarterly in arrears.
• LC issuance fee: We suggest a tiered structure — 50% of the applicable margin for financial standby Letters of Credit and 40% of the applicable margin for commercial/documentary Letters of Credit — to reflect the lower risk profile and shorter duration typically associated with commercial trade LCs.
These fee levels are consistent with market practice for shipping revolving credit facilities of comparable size.
2.4.2 Swingline Sublimit. Up to $15,000,000 of the Facility may be utilized in the form of swingline loans (each, a "Swingline Loan"; collectively, "Swingline Loans").
[C&H COMMENT]: We request clarification that Swingline Loans are available on same-day notice (i.e., the Borrower may request and receive a Swingline Loan on the same Business Day on which the borrowing request is delivered to the Administrative Agent), rather than on a next-business-day basis. Same-day availability is standard for working capital revolvers of this size and is critical for TSL's cash management needs, particularly given the time zone differences between the Borrower's operations in Greece and the Agent's offices in New York.
[C&H COMMENT]: We request confirmation that Meridian Atlantic Bank, N.A. will serve as the sole Swingline Lender under the Facility. Additionally, we request confirmation that Swingline Loan availability will continue without interruption so long as aggregate revolving outstandings (including Swingline Loans, revolving loans, and LC exposure) do not exceed the Total Commitments of $150,000,000. In other words, if Meridian Atlantic's retained revolving commitment of $45,000,000 is fully drawn through revolving loans, the Swingline Lender should still be able to fund Swingline Loans provided that the aggregate outstandings across the entire Facility (after giving effect to such Swingline Loan) do not exceed Total Commitments.
2.5 Availability Period
The Facility shall be available from the Closing Date through and including the Maturity Date (the "Availability Period"). Amounts may be borrowed, repaid, and reborrowed during the Availability Period.
[C&H COMMENT]: We have added language confirming the fully revolving nature of the Facility — i.e., that repayments of revolving loans restore availability under the Total Commitments and may be reborrowed at any time during the Availability Period. This is consistent with the fundamental structure of a revolving credit facility, but it is important that the principle be stated expressly in the Term Sheet and the Credit Agreement to avoid any ambiguity.
2.6 Maturity Date
The Facility shall mature on the date that is five (5) years after the Closing Date (the "Maturity Date").
Based on the anticipated closing timeline of Q2/Q3 2023, the Maturity Date is expected to fall in approximately mid-2028 (e.g., if the Closing Date is July 15, 2023, the Maturity Date would be July 15, 2028).
[C&H COMMENT]: We request that the Maturity Date be specified as a hard calendar date upon execution of the Credit Agreement (e.g., "the fifth anniversary of the Closing Date"), rather than being left as a floating concept. This will avoid any ambiguity in calculating the maturity and will facilitate administrative functions such as interest period selection near the end of the Facility's term.
[C&H COMMENT — Springing Maturity]: We request confirmation that the Credit Agreement will not include a "springing maturity" provision (i.e., a provision under which the Maturity Date would automatically accelerate to a date prior to the stated maturity if the Existing Credit Facility with Harborstone National Bank is not refinanced by a specified date preceding its November 15, 2023 maturity). Because the payoff of the Existing Credit Facility will be a condition precedent to the initial borrowing under this Facility (see Section 11), the risk of the Existing Credit Facility remaining outstanding after the closing of this Facility is addressed at closing itself. Accordingly, a springing maturity provision is unnecessary and would create undue complexity.
2.7 Extension Option
The Term Sheet is silent on any extension option.
[C&H COMMENT]: We have proposed the inclusion of a one-year extension option, which is a market-standard feature in shipping revolving credit facilities. The extension option provides the Borrower with flexibility to extend the maturity of the Facility without the cost and disruption of a full refinancing, while protecting the Lenders by making the extension subject to each individual Lender's consent (on a "Lender-by-Lender" basis). Non-extending Lenders would be subject to replacement or commitment reduction, ensuring that the extending Lenders are not prejudiced. We expect that this provision will be a point of discussion with WJA and the Lenders, but note that similar provisions have been included in recent comparable shipping facilities.
SECTION 3: PRICING
3.1 Interest Rate
Each revolving loan shall bear interest at a rate per annum equal to Term SOFR (as defined below) for the applicable Interest Period, plus the Applicable Margin.
Applicable Margin:
[C&H COMMENT — SOFR Mechanics]: The Term Sheet references SOFR as the benchmark interest rate but does not specify the detailed mechanics. We request that the following SOFR-related provisions be incorporated into the Credit Agreement:
• Definition of Term SOFR: Term SOFR should be defined as the forward-looking term rate published by CME Group Benchmark Administration Limited (or any successor administrator approved by the Relevant Governmental Body) for the applicable Interest Period, determined two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period (the standard "lookback" convention).
• SOFR Credit Spread Adjustment (CSA): We request clarification from Meridian Atlantic as to whether a credit spread adjustment applies to Term SOFR. Post-ARRC guidance has generally moved away from requiring a CSA for new SOFR-based facilities (i.e., facilities that are originated as SOFR facilities rather than converted from LIBOR). If a CSA is to apply, we would expect the following adjustments: 10 basis points for 1-month Interest Periods, 15 basis points for 3-month Interest Periods, and 25 basis points for 6-month Interest Periods. The Borrower's preference is that no CSA apply, consistent with the prevailing market approach for newly originated SOFR facilities.
• Benchmark Replacement Provisions: The Credit Agreement should include benchmark replacement provisions consistent with the ARRC "hardwired" approach (the recommended fallback waterfall), providing for an automatic transition to a successor benchmark rate in the event that Term SOFR is discontinued or becomes unrepresentative, without requiring amendment or Lender consent. The fallback waterfall should follow the order recommended by ARRC: (1) Term SOFR successor rate, (2) Daily Simple SOFR, (3) a rate selected by the Administrative Agent and the Borrower.
• SOFR Floor: The Borrower's position is that there should be a 0.00% floor on SOFR (i.e., Term SOFR shall be deemed to be zero if the published rate is negative, but no minimum positive floor shall apply). The Borrower resists any positive floor (e.g., 0.50% or 0.75%) on SOFR, as such a floor would effectively increase the all-in cost of borrowing and is not warranted in the current interest rate environment.
[C&H COMMENT — Pricing Grid]: We have proposed that the Term Sheet specify the full pricing grid with three levels based on the Consolidated Net Leverage Ratio, as set forth in the table above. The Term Sheet as circulated referenced a range of 225 to 325 basis points but did not specify the leverage thresholds at each level. We have proposed thresholds that we believe are consistent with TSL's expected financial profile and with market practice for investment-grade-adjacent shipping credits.
The Borrower requests that the initial Applicable Margin be set at Level 2, reflecting the Borrower's fiscal year 2022 Consolidated EBITDA of approximately $145,000,000 and its expected Consolidated Net Leverage Ratio at closing (which we estimate to be in the range of 2.75:1.00 to 3.25:1.00 based on anticipated net debt levels). The initial margin would then be subject to adjustment — either upward or downward — upon delivery of the first Compliance Certificate following the Closing Date.
[C&H COMMENT — Request for Pricing Parity]: The Existing Credit Facility with Harborstone National Bank bears interest at LIBOR plus 250 basis points. After accounting for the SOFR/LIBOR basis differential (which is approximately 10-26 basis points depending on tenor), the proposed Level 2 margin of SOFR + 275 bps represents an approximate 25 basis point increase in the Borrower's all-in cost of borrowing. The Borrower respectfully requests that Meridian Atlantic reconsider the Level 2 margin and reduce it to SOFR + 250 bps in order to achieve approximate pricing parity with the Existing Credit Facility. We believe this adjustment is commercially reasonable given (a) the substantial increase in Total Commitments (from $125M to $150M), (b) the comprehensive collateral package securing the Facility, and (c) the Borrower's strong financial performance in FY2022.
[C&H COMMENT — Base Rate Option]: We have added a column to the pricing grid for an Alternate Base Rate ("ABR") margin. The Borrower requests inclusion of an ABR option as an alternative to SOFR for domestic U.S. dollar borrowings, with the ABR margin set at 100 basis points less than the SOFR margin at each grid level. The ABR should be defined as the highest of (i) the Federal Funds Rate plus 0.50%, (ii) Term SOFR for a one-month Interest Period plus 1.00%, and (iii) the prime rate as published by Meridian Atlantic. The ABR option provides operational flexibility for short-term borrowings and is a standard feature of U.S. dollar revolving credit facilities.
3.2 Interest Periods
[C&H COMMENT]: We have proposed the inclusion of a 1-week Interest Period option for short-term draws. This provides the Borrower with additional flexibility to manage its interest costs by selecting shorter Interest Periods for borrowings that are expected to be repaid quickly. One-week Interest Periods are available from CME Group for Term SOFR and are increasingly common in revolving credit facilities.
We have also proposed that Swingline Loans bear interest at Daily Simple SOFR (rather than Term SOFR), which is the standard convention for overnight or short-duration borrowings that do not align with the fixed-term structure of Term SOFR.
[C&H COMMENT — Broken Funding]: We request that any "broken funding" indemnity (i.e., an indemnity for losses incurred by a Lender as a result of a prepayment or non-borrowing during an Interest Period) be narrowly tailored to cover only actual, documented losses (including breakage costs) and expressly exclude consequential, indirect, speculative, or punitive damages. The broken funding indemnity should not serve as a penalty or disincentive for the Borrower to exercise its prepayment or reborrowing rights.
3.3 Default Rate
Upon the occurrence and during the continuance of , the outstanding principal amount of all loans and any overdue interest or fees shall bear interest at a rate per annum equal to 2.00% above the rate otherwise applicable thereto (the "Default Rate").
[C&H COMMENT]: The Term Sheet provides for default interest of +2.00% per annum above the otherwise applicable rate, which is a standard quantum. However, the Borrower's position is that default interest should apply only under the following circumstances:
(a) Upon acceleration of the Facility obligations by the Required Lenders (or the Administrative Agent acting at the direction of the Required Lenders); or
(b) Upon delivery of written notice from the Administrative Agent to the Borrower specifically stating that default interest has been imposed.
Default interest should not apply automatically upon the occurrence of any "Default" (as distinguished from an "Event of Default"). The distinction between a Default (an event that, with the giving of notice or lapse of time, could become an Event of Default) and an Event of Default (which has matured beyond any applicable notice and cure periods) is fundamental to the protective framework of the Credit Agreement. Imposing default interest upon a mere Default — before cure periods have expired — would be punitive and inconsistent with the Borrower's reasonable expectations.
3.4 Commitment Fee
The Borrower shall pay to each Lender, through the Administrative Agent, a commitment fee (the "Commitment Fee") accruing on the daily average unused portion of such Lender's Commitment at the following rates:
The Commitment Fee shall accrue from the Closing Date and shall be payable quarterly in arrears on the last Business Day of each calendar quarter and on the Maturity Date.
[C&H COMMENT]: The Term Sheet proposes a two-tier commitment fee structure (0.375% stepping down to 0.25% at 50% utilization). The Borrower proposes a three-tier commitment fee grid as set forth above, with breakpoints at 33% and 66% utilization. The rationale for the three-tier structure is as follows:
TSL anticipates a variable utilization pattern over the life of the Facility, driven by the seasonal nature of the shipping industry. During peak shipping seasons (e.g., Q3 and Q4 for dry bulk), utilization is expected to be higher as the Borrower draws on the Facility to fund working capital needs and fleet operations. During off-peak periods, utilization may drop significantly. A graduated three-tier grid better aligns the Commitment Fee with the Borrower's actual usage of the Facility and provides a more equitable fee structure.
[C&H COMMENT]: We request confirmation that the Commitment Fee accrues on the total commitment of each Lender less outstanding revolving loans and LC exposure (i.e., the face amount of outstanding Letters of Credit reduces the unused commitment base for purposes of the Commitment Fee calculation). Additionally, Swingline Loans should reduce the Commitment Fee base in the same manner as revolving loans, as Swingline Loans represent an actual utilization of the Facility.
3.5 Upfront / Arranging Fee
An upfront fee (the "Upfront Fee") in the amount of $750,000 (equal to 0.50% of the Total Commitments of $150,000,000) shall be payable by the Borrower to Meridian Atlantic Bank, N.A. (in its capacity as Sole Lead Arranger) on the Closing Date.
[C&H COMMENT]: The Upfront Fee is consistent with the terms agreed between TSL and Meridian Atlantic in the Mandate and Fee Letter dated February 14, 2023. No comment or revision.
3.6 Administrative Agent Fee
The Borrower shall pay to Meridian Atlantic Bank, N.A. (in its capacity as Administrative Agent) an annual administrative agency fee (the "Agent Fee") of $75,000, payable .
[C&H COMMENT]: We have proposed that the Agent Fee be payable in arrears (rather than in advance), which is the Borrower's preferred approach. Additionally, we have added language providing that the Agent Fee terminates upon replacement of Meridian Atlantic as Administrative Agent, with proration for any partial year. This ensures that the Borrower is not required to pay a full year's Agent Fee to an outgoing Agent that has been replaced mid-year.
3.7 LC Issuance Fee and Fronting Fee
[C&H COMMENT]: The Term Sheet is silent on LC fees. We have proposed the inclusion of market-standard LC fee provisions as set forth above. The LC participation fee (equal to the applicable SOFR margin) compensates the Lenders for their pro rata participation in the LC exposure risk, while the fronting fee (12.5 bps) compensates the Issuing Bank for the direct credit risk and administrative burden associated with issuing Letters of Credit. These fee levels are consistent with comparable shipping revolving credit facilities.
SECTION 4: COLLATERAL PACKAGE
4.1 Vessel Mortgages
The Facility shall be secured by first-priority ship mortgages (the "Vessel Mortgages") on eighteen (18) designated vessels (the "Mortgaged Vessels"), to be granted in favor of the Collateral Agent for the benefit of the Secured Parties.
The aggregate appraised fair market value of the Mortgaged Vessels is approximately $780,000,000, based on an independent appraisal to be delivered by Seastone Maritime Advisors Ltd. (London).
The TSL fleet consists of a total of 40 vessels (28 dry bulk carriers and 12 tankers). The 18 Mortgaged Vessels represent 45% of the fleet by number and approximately 65% of the fleet by value (based on the total fleet value of approximately $1.2 billion as of Q1 2023).
[C&H COMMENT — Flag States and Vessel Schedule]: We request that the Term Sheet (and, more importantly, the Credit Agreement) specify the flag states of each of the 18 Mortgaged Vessels and confirm that the Vessel Mortgages will be governed by the law of each vessel's flag state. The enforceability and perfection of ship mortgages are governed by the law of the flag state under which the vessel is registered, and it is essential that the documentation reflect the applicable legal requirements for each jurisdiction.
We further request that the Credit Agreement include a schedule identifying each of the 18 Mortgaged Vessels by (a) vessel name, (b) IMO number, (c) flag state, (d) year of build, (e) deadweight tonnage (DWT), (f) vessel-owning subsidiary (SPV), and (g) most recent appraised fair market value. This schedule will facilitate the administration of the collateral package and the tracking of the Collateral Coverage Ratio.
[C&H COMMENT — Vessel Substitution]: The Borrower requests the inclusion of vessel release and substitution mechanics in the Credit Agreement, permitting the Borrower to release a Mortgaged Vessel from the collateral package and substitute a replacement vessel, provided that:
(i) the replacement vessel has a fair market value (as confirmed by an independent appraisal) at least equal to the fair market value of the released vessel;
(ii) after giving effect to the release and substitution, the Collateral Coverage Ratio (as defined in Section 4.2 below) is maintained at or above the required minimum level;
(iii) the replacement vessel is of comparable age, type, and condition to the released vessel;
(iv) a first-priority Vessel Mortgage on the replacement vessel is duly executed and recorded in favor of the Collateral Agent; and
(v) all related collateral documentation (insurance assignments, charter assignments, earnings account assignments) is delivered for the replacement vessel.
This flexibility is critical for TSL's fleet management operations, including drydocking schedules, vessel sales in the ordinary course of business, and scrapping of older tonnage.
[C&H COMMENT — Unmortgaged Vessels]: We note that TSL's full fleet value is approximately $1.2 billion (based on Q1 2023 valuations), and the 18 Mortgaged Vessels at approximately $780,000,000 represent approximately 65% of total fleet value. The remaining 22 unmortgaged vessels (with an aggregate value of approximately $420,000,000) are not included in the collateral package. The Borrower wishes to preserve full operational flexibility with respect to these unmortgaged vessels — including the right to sell, charter (on any basis, including bareboat), encumber, or otherwise dispose of such vessels without the consent of the Lenders (subject to compliance with the negative covenants in the Credit Agreement).
4.2 Minimum Collateral Coverage Ratio
The appraised fair market value of the Mortgaged Vessels shall at all times be at least equal to 140% of the outstanding Facility Obligations (the "Collateral Coverage Ratio" or "CCR").
At full utilization of the Facility ($150,000,000 outstanding), the minimum required collateral value would be $210,000,000 (140% × $150,000,000).
[C&H COMMENT — Initial Coverage]: At the initial appraised fair market value of $780,000,000 for the 18 Mortgaged Vessels, the Collateral Coverage Ratio at full utilization would be approximately 520% ($780,000,000 ÷ $150,000,000 = 5.20x), providing substantial headroom above the 140% minimum floor. Even in a severe downside scenario involving a 50% decline in vessel values (which would reduce the collateral value to approximately $390,000,000), the CCR at full utilization would remain at approximately 260%, well above the 140% floor. This demonstrates the strength of the collateral package and supports the Borrower's position on a number of the structural protections discussed below.
[C&H COMMENT — Testing Frequency]: We request that the Collateral Coverage Ratio be tested semi-annually (rather than quarterly, as is sometimes proposed by lenders). Semi-annual testing is consistent with market practice for shipping revolving credit facilities and balances the Lenders' need for collateral monitoring with the cost and administrative burden of obtaining vessel appraisals. Appraisals should be at the Borrower's expense but should be limited to one "desktop" (broker's opinion of value) appraisal per year under normal circumstances. A full physical appraisal should be required only if the Collateral Coverage Ratio falls below 160% (a "watch level" that provides an early warning before the 140% hard floor is breached), at which time the Administrative Agent may request a full physical inspection and appraisal at the Borrower's expense.
[C&H COMMENT — Cure Right]: We request that, in the event the Collateral Coverage Ratio falls below 140%, the Borrower be given 60 days (not 30 days, as is commonly proposed by lenders) to cure the deficiency by taking one or more of the following actions:
(a) providing additional Vessel Mortgages on previously unmortgaged vessels;
(b) prepaying outstanding revolving loans in an amount sufficient to restore compliance; or
(c) depositing cash collateral with the Collateral Agent in an amount sufficient to restore compliance.
A 60-day cure period is warranted given the operational realities of the shipping industry — obtaining appraisals, executing and recording ship mortgages in foreign flag state registries, and arranging insurance assignments all require significant lead time.
[C&H COMMENT — Definition of "Outstanding Facility Obligations"]: We request that, for purposes of calculating the Collateral Coverage Ratio, "outstanding Facility Obligations" be defined to include only (i) the outstanding principal amount of revolving loans (including Swingline Loans) and (ii) unreimbursed LC disbursements. The definition should not include (a) undrawn commitments, (b) accrued but unpaid interest or fees, (c) contingent indemnification obligations, or (d) the face amount of undrawn but outstanding Letters of Credit. Including undrawn commitments or contingent obligations in the denominator would artificially reduce the CCR and could trigger premature cure requirements.
4.3 Earnings Accounts
The Borrower shall grant to the Collateral Agent, for the benefit of the Secured Parties, an assignment of the earnings accounts (the "Earnings Accounts") for each of the Mortgaged Vessels, including all freight, hire, and charter revenue receivable in respect of such vessels.
[C&H COMMENT — Sweep Mechanics]: The Borrower's position is that earnings should be swept from the Earnings Accounts to pay down Facility obligations only upon the occurrence of a Trigger Event, which should be defined as:
(a) an Event of Default has occurred and is continuing; or
(b) the Collateral Coverage Ratio has fallen below 140% and the Borrower has failed to cure such deficiency within the applicable cure period (see Section 4.2 above).
The Borrower strongly opposes any continuous cash sweep mechanism (i.e., a mechanism under which all earnings are automatically swept to the Administrative Agent on a daily or periodic basis). A continuous sweep would deprive the Borrower of operational control over its revenue streams, impairing its ability to pay vessel operating expenses (crew wages, bunker costs, port charges, insurance premiums, maintenance costs) in the ordinary course of business. TSL's fleet generates substantial daily revenue, and the Borrower must retain the ability to manage these funds for day-to-day operations without administrative interference. A trigger-based sweep provides adequate protection for the Lenders while preserving the Borrower's operational autonomy.
[C&H COMMENT — Earnings Account Location]: The Borrower requests flexibility to maintain the Earnings Accounts at any bank acceptable to the Administrative Agent (such consent not to be unreasonably withheld, conditioned, or delayed), rather than being required to maintain all Earnings Accounts at Meridian Atlantic. TSL currently maintains earnings accounts at several banks across multiple jurisdictions (including in Greece, Cyprus, and Singapore), and requiring a transfer of all accounts to Meridian Atlantic would be operationally disruptive and could result in increased banking costs.
4.4 Insurance Assignments
The Borrower shall grant to the Collateral Agent, for the benefit of the Secured Parties, an assignment of all hull & machinery ("H&M") insurance and protection & indemnity ("P&I") insurance maintained with respect to the Mortgaged Vessels, including war risk and loss of hire insurance (collectively, the "Insurance Assignments").
[C&H COMMENT — Insurance Broker]: TSL's marine insurance program is arranged through Trident Marine Insurance Brokers Ltd. (Lloyd's Building, One Lime Street, London EC3M 7HA, United Kingdom). The Borrower will procure, at its expense, loss payee endorsements and additional assured endorsements on all H&M, P&I, and war risk policies in favor of Pinnacle Trust & Agency Services Inc. (as Collateral Agent), in form and substance reasonably satisfactory to the Administrative Agent.
[C&H COMMENT — Minimum Insurance Coverage Levels]: We request that the Term Sheet (and the Credit Agreement) specify the minimum insurance coverage levels applicable to the Mortgaged Vessels, as follows:
• Pyreval Insurance: Coverage at not less than 110% of each Mortgaged Vessel's most recently appraised fair market value, placed with insurers having a minimum rating of A- (Excellent) by A.M. Best or equivalent rating agency.
• P&I Insurance: Coverage at customary limits through a P&I Club that is a member of the International Group of P&I Clubs, which provides coverage up to the pooling limits of the International Group (currently approximately $3.1 billion per claim).
• War Risk Insurance: Coverage at industry-standard limits and terms, including coverage for the trading areas in which the Mortgaged Vessels operate.
These coverage levels are consistent with prudent industry practice in the international shipping industry and should be acceptable to all Lenders.
[C&H COMMENT — Mortgagee Interest Insurance (MII)]: The Borrower resists any requirement to maintain mortgagee interest insurance ("MII") at the Borrower's expense. MII is insurance that protects the mortgagee (here, the Collateral Agent on behalf of the Lenders) against loss arising from the invalidation of the underlying H&M or P&I insurance due to the acts or omissions of the Borrower (such as a breach of the duty of utmost good faith or a failure to disclose material information to the insurers). While MII may be appropriate in certain circumstances, the cost of such coverage should be borne by the Lenders (at their option), not the Borrower. The Borrower will maintain comprehensive insurance coverage as described above, and the Lenders' interests will be adequately protected through the loss payee and additional assured endorsements.
4.5 Share Pledges
The Borrower (and, as applicable, each intermediate holding company) shall pledge to the Collateral Agent, for the benefit of the Secured Parties, 100% of the equity interests in each vessel-owning subsidiary (each, a "Vessel SPV") that owns a Mortgaged Vessel, as well as 100% of the equity interests in each Guarantor.
[C&H COMMENT]: We confirm that the share pledges should cover:
(a) 100% of the equity interests in each of the three direct subsidiaries of TSL that serve as Guarantors (i.e., Thalassa Dry Bulk Holdings Ltd., Thalassa Tanker Operations Ltd., and Thalassa Logistics International Ltd.); and
(b) 100% of the equity interests in each vessel-owning SPV below these entities that owns a Mortgaged Vessel.
We note that the mechanics and perfection requirements for share pledges will vary by the jurisdiction of organization of each entity:
• Cyprus entities (Thalassa Dry Bulk Holdings Ltd. and Thalassa Logistics International Ltd., as well as any Cyprus-incorporated Vessel SPVs): pledges to be governed by Cyprus law and perfected by registration with the Department of Registrar of Companies in Nicosia and notation on the share register. Local counsel opinion to be obtained.
• marshall Islands entities (Thalassa Tanker Operations Ltd. and any marshall Islands-incorporated Vessel SPVs): pledges to be governed by marshall Islands law and perfected in accordance with the marshall Islands Business Corporations Act. Local counsel opinion to be obtained.
We will coordinate with the relevant local counsel to confirm the perfection requirements and timeline for each jurisdiction.
[C&H COMMENT — Voting Rights]: The Borrower requests that voting rights in the pledged shares remain with the Borrower (and the applicable pledgor entity) at all times except during the continuance of an Event of Default (and not merely a "Default"). This is consistent with market practice and ensures that the Borrower retains control over the management and governance of its subsidiaries during the normal course of business.
4.6 Charter Assignments
The Borrower shall grant to the Collateral Agent, for the benefit of the Secured Parties, an assignment of all time charters and other employment contracts with relating to the Mortgaged Vessels (the "Charter Assignments").
[C&H COMMENT — Threshold]: We have proposed increasing the threshold for charter assignment from 12 months to 18 months. Shorter-duration charters are frequently renegotiated and renewed in the dry bulk and tanker markets, and requiring assignment of charters with remaining terms of only 12 months or more would impose significant administrative burden on the Borrower (including the need to obtain charterer consents and deliver notice of assignment for each qualifying charter). At a threshold of 18 months, the assignment requirement would capture the Borrower's medium-term and long-term charter portfolio — which represents the most significant and stable revenue streams — while excluding short-term charters that are expected to roll over in the ordinary course.
[C&H COMMENT — Quiet Enjoyment]: The Borrower requests the inclusion of "quiet enjoyment" provisions in the Credit Agreement, providing that (a) notice of the charter assignment shall not be delivered to the relevant charterer until the occurrence and continuance of an Event of Default, and (b) the Collateral Agent shall not exercise any rights under the assigned charters (including the right to redirect freight or hire payments) until the occurrence and continuance of an Event of Default. This approach protects the Borrower's commercial relationships with its charterers and avoids the potential disruption that could result from premature notification of the Lenders' security interest in the charter contracts.
SECTION 5: FINANCIAL COVENANTS
5.1 Maximum Consolidated Net Leverage Ratio
The Borrower shall not permit the Consolidated Net Leverage Ratio (the ratio of Consolidated Net Debt to Consolidated EBITDA) to exceed:
(a) 4.50:1.00 at any time prior to the first fiscal quarter ending on or after the third anniversary of the Closing Date; and
(b) .
[C&H COMMENT — Covenant Level]: The Borrower accepts the initial maximum Consolidated Net Leverage Ratio of 4.50:1.00. Based on the Borrower's fiscal year 2022 Consolidated EBITDA of approximately $145,000,000, this covenant level implies maximum permitted Consolidated Net Debt of approximately $652,500,000 ($145M × 4.50). Given the Borrower's current consolidated net debt levels (which we estimate to be in the range of $380,000,000–$420,000,000), this provides adequate headroom for the Borrower's operations and growth plans.
[C&H COMMENT — Step-Down Timing]: We have proposed a minor but important revision to the timing of the step-down from 4.50:1.00 to 4.00:1.00. The Term Sheet states that the step-down commences "with the first fiscal quarter ending on or after the third anniversary." Our revision clarifies that the step-down takes effect at the first fiscal quarter ending after the third anniversary of the Closing Date — i.e., the quarter in which the third anniversary falls should still be tested at the 4.50:1.00 level, with the more restrictive 4.00:1.00 level applying beginning with the immediately following quarter. This provides the Borrower with one additional quarter of headroom during the transition.
[C&H COMMENT — Definition of "Consolidated Net Debt"]: We request that "Consolidated Net Debt" be defined as total consolidated funded indebtedness of the Borrower and its Subsidiaries, minus the following items:
(a) unrestricted cash and cash equivalents in excess of $5,000,000 (a small minimum cash threshold to avoid the argument that virtually all of the Borrower's cash is deducted from debt);
(b) restricted cash (including cash collateral on deposit with the Collateral Agent); and
(c) amounts on deposit in the Earnings Accounts (to the extent such amounts are not otherwise counted as unrestricted cash).
The inclusion of these deductions is important because TSL maintains significant cash balances across its global operations, and the net leverage covenant should reflect the Borrower's true net debt position after accounting for available liquidity.
[C&H COMMENT — Definition of "Consolidated EBITDA"]: We request that "Consolidated EBITDA" be defined as consolidated net income of the Borrower and its Subsidiaries, adjusted to add back the following items: (a) consolidated interest expense, (b) income tax expense, (c) depreciation and amortization, (d) non-cash charges and losses (including impairment charges, stock-based compensation, and unrealized losses on derivatives), (e) non-recurring charges and expenses (including restructuring charges, transaction costs, and extraordinary items), subject to a cap of the greater of $15,000,000 or 10% of Consolidated EBITDA, (f) fees and expenses incurred in connection with the transactions contemplated by the Credit Agreement, and (g) pro forma EBITDA adjustments for acquired or disposed vessels (including vessels acquired or disposed of during the trailing twelve-month measurement period), calculated on a pro forma basis as if such acquisition or disposition had occurred on the first day of the measurement period.
These add-backs are customary for credit facilities in the shipping sector and ensure that the leverage covenant reflects the Borrower's recurring, cash-generating capacity.