REDLINE MARKUP — DRAFT ASSIGNMENT OF INSURANCES
Prepared by Calderwood & Harkness LLP on behalf of Thalassa Shipping & Logistics SA (the "Borrower")
Markup of draft originally circulated by Whitmore, Jennings & Alcott LLP (Lender's Counsel) on June 16, 2023
Markup Dated: June 23, 2023
Source Document: Draft Assignment of Insurances prepared by Whitmore, Jennings & Alcott LLP on behalf of Meridian Atlantic Bank, National Association, as Administrative Agent
Matter: Thalassa Shipping & Logistics SA — $150,000,000 Senior Secured Revolving Credit Facility
C&H Matter Number: 1044-00002
Convention Note: Throughout this document, proposed deletions are shown using the notation and proposed insertions are shown using the notation . Calderwood & Harkness LLP margin comments are presented in bracketed bold annotations labeled [C&H Comment No. __] and set forth the Borrower's rationale for each proposed revision or flag outstanding issues for further discussion between the parties. This markup reflects the Borrower's initial response to the Lender's Counsel's draft and does not constitute the Borrower's final position on all matters addressed herein.
TRANSMITTAL COVER MEMORANDUM
CALDERWOOD & HARKNESS LLP 425 Park Avenue New York, NY 10022 Tel: +1 (212) 558-4000
Fax: +1 (212) 558-3588
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
From: Sophie Tremblay, Senior Associate, Banking & Finance, Calderwood & Harkness LLP
To: Priya Subramanian, Associate, Finance & Restructuring, Whitmore, Jennings & Alcott LLP
CC: Ian Blackwood (C&H Partner, Banking & Finance); Daniel Obi (C&H Associate, Banking & Finance); Harrison Caldwell (WJA Partner, Finance & Restructuring); Aris Komnenidis (Thalassa Shipping & Logistics SA, General Counsel); Dimitrios Pantazis (Thalassa Shipping & Logistics SA, Chief Financial Officer)
Date: June 23, 2023
Re: Borrower's Markup of Draft Assignment of Insurances — Thalassa Shipping & Logistics SA $150,000,000 Senior Secured Revolving Credit Facility
Dear Priya,
On behalf of our client, Thalassa Shipping & Logistics SA ("TSL" or the "Borrower"), we enclose herewith the Borrower's markup of the Draft Assignment of Insurances that your firm circulated to us on behalf of Meridian Atlantic Bank, National Association, as Administrative Agent, on June 16, 2023. This markup has been prepared following a detailed review of the draft by our Banking & Finance and Shipping & Trade Finance teams, in close consultation with TSL's in-house legal department and insurance advisors.
The markup contains fifty-three (53) comments and proposed revisions. While many of the revisions are of a conforming or technical nature, a number address substantive points of importance to the Borrower. The key areas of the markup are summarized as follows:
(i) Scope and Definition of Required Insurance Coverages. We have proposed revisions to the definitions of Pyreval Insurance, P&I Insurance, and War Risk Insurance to ensure that the defined terms reflect current market practice and accurately describe the coverage maintained by TSL's fleet. In particular, we have proposed expanding the definition of War Risk Insurance to include piracy and cyber-attack perils and clarifying that P&I coverage must be with a member club of the International Group of P&I Clubs. We have also proposed that increased value insurance be at the Borrower's option rather than a mandatory requirement.
(ii) Loss Payee and Additional Assured Provisions. We have proposed certain modifications to the loss payee and additional assured provisions in favor of Pinnacle Trust & Agency Services Inc. as Collateral Agent, including the introduction of a per-incident threshold of $1,000,000 below which casualty proceeds are paid directly to the Borrower for application to repair costs. We have also proposed that additional assured status be granted on a "for their respective rights and interests" basis (FTRROI), which is standard for secured lending in the shipping finance context.
(iii) Trident Marine Insurance Brokers Ltd. We have proposed revisions addressing the role and obligations of Trident Marine Insurance Brokers Ltd. as the Borrower's insurance broker, including naming Trident Marine as the designated broker in the definition section and preserving the Borrower's right to replace the broker with a broker of recognized standing in the London marine insurance market, subject to notice to (but not consent of) the Collateral Agent. The form of broker's letter of undertaking remains to be agreed.
(iv) Borrower's Operational Flexibility. A significant number of our proposed revisions are directed at preserving the Borrower's operational flexibility in connection with insurance renewals, club calls, premium payments, and day-to-day fleet operations. We note in particular our objection to the requirement for prior written consent of the Administrative Agent before trading in additional war risk premium areas, which we have proposed replacing with a notice-only requirement.
(v) Notice and Consent Mechanics. We have proposed revisions to the notice and consent mechanics throughout the draft to ensure that they are operationally workable for a fleet of eighteen (18) Mortgaged Vessels trading internationally. This includes increasing the claims notification threshold from $250,000 to $500,000, reducing the pre-renewal notice period from 30 days to 14 days, and introducing cure periods for insurance-related Events of Default.
(vi) Interaction with the Credit Agreement. At several points, we have noted that cross-references to the Credit Agreement remain to be finalized upon execution. We have also proposed an interpretation rule providing that in the event of a conflict between this Assignment and the Credit Agreement, the Credit Agreement shall prevail.
(vii) Insurance Proceeds Waterfall and Application Mechanics. We have proposed a detailed framework for the application of insurance proceeds in the case of both Total Loss and partial casualty events, including the Borrower's right to receive excess proceeds where the collateral coverage ratio continues to be satisfied following a mandatory prepayment.
(viii) Release and Termination Provisions. We have proposed that the Collateral Agent be required to execute and deliver release documentation within ten (10) Business Days of the Assignor's request following satisfaction of the termination conditions.
We note that the assignment covers all eighteen (18) Mortgaged Vessels as identified in the valuation mandate to Seastone Maritime Advisors Ltd. The Seastone appraisals have been commissioned but were, at the time of this markup, still pending. We understand that final appraisals are expected to be delivered on or about July 10, 2023, and that the aggregate appraised fair market value of the eighteen Mortgaged Vessels is expected to be approximately $780,000,000. Schedule I to the Assignment (List of Mortgaged Vessels) will be populated upon receipt of the final Seastone appraisals, and any cross-references to the appraisals will be confirmed at that time.
We would welcome the opportunity to discuss the open points in this markup with you and your team at Whitmore, Jennings & Alcott during the week of June 26, 2023. Please let us know your availability for a call, which we suggest should also include Ian Blackwood and Harrison Caldwell, as well as Aris Komnenidis from TSL's in-house legal team. We anticipate that many of the outstanding points can be resolved efficiently in a single call, with the remaining items addressed in a revised draft.
We look forward to your comments on this markup and to progressing this document toward execution as part of the broader closing of the facility.
Very truly yours,
Sophie Tremblay Senior Associate, Banking & Finance Calderwood & Harkness LLP 425 Park Avenue New York, NY 10022 Tel: +1 (212) 558-4127
Email: s.tremblay@calderwoodharkness.com
Enclosure: Redline Markup of Draft Assignment of Insurances
ASSIGNMENT OF INSURANCES
dated as of
among
THALASSA SHIPPING & LOGISTICS SA as Assignor
and
PINNACLE TRUST & AGENCY SERVICES INC. as Collateral Agent
in connection with the $150,000,000 Senior Secured Revolving Credit Facility
This ASSIGNMENT OF INSURANCES (this "Assignment") is entered into as of by and between THALASSA SHIPPING & LOGISTICS SA, a Société Anonyme organized under the laws of the Hellenic Republic (the "Assignor"), and PINNACLE TRUST & AGENCY SERVICES INC., a corporation organized under the laws of the State of Delaware (the "Collateral Agent"), acting for the benefit of the Secured Parties (as defined herein).
RECITALS
WHEREAS, the Assignor, the Guarantors party thereto, the Lenders party thereto, and Meridian Atlantic Bank, National Association, as Administrative Agent, have entered into (or are concurrently entering into) that certain Senior Secured Revolving Credit Agreement dated as of (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), pursuant to which the Lenders have agreed to make available to the Assignor a revolving credit facility in the aggregate principal amount of $150,000,000;
WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement and the availability of the revolving credit facility that the Assignor execute and deliver this Assignment in favor of the Collateral Agent, for the benefit of the Secured Parties, as security for the Secured Obligations;
WHEREAS, the Assignor is the owner, or the parent company of the vessel-owning subsidiaries that are the respective owners, of the Mortgaged Vessels listed on Schedule I hereto, and maintains or procures the maintenance of certain insurances in respect of the Mortgaged Vessels; and
WHEREAS, the Assignor has agreed to assign to the Collateral Agent, for the benefit of the Secured Parties, all of the Assignor's right, title, and interest in and to the Required Insurances as security for the Secured Obligations, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.01 — Definitions
As used in this Assignment, the following terms shall have the meanings set forth below. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
"Administrative Agent" means Meridian Atlantic Bank, National Association, a national banking association organized under the laws of the United States, with its principal office at 600 Lexington Avenue, 38th Floor, New York, NY 10022, in its capacity as administrative agent for the Lenders under the Credit Agreement, and its successors and assigns in such capacity.
[C&H Comment 1]: No change proposed. Definition is consistent with the Credit Agreement and other Loan Documents.
"Assignor" means Thalassa Shipping & Logistics SA, a Société Anonyme organized under the laws of the Hellenic Republic, with its registered office at 14 Akti Miaouli, Piraeus 185 35, Greece (Greek Tax Identification Number (AFM): 094728361; General Electronic Commercial Registry (GEMI) Registration No. 143209501000) .
[C&H Comment 2]: We note that the WJA draft defined "Assignor" as TSL only. However, in TSL's corporate structure, each Mortgaged Vessel is owned by a vessel-owning subsidiary, and the relevant insurance policies name those subsidiaries as the assured (with TSL as co-assured in many cases). To ensure the effectiveness of this Assignment, we propose expanding the definition of "Assignor" to include each Subsidiary Guarantor that is a named insured on the relevant policies. The three subsidiaries identified—Thalassa Dry Bulk Holdings Ltd., Thalassa Tanker Operations Ltd., and Thalassa Logistics International Ltd.—are the intermediate holding companies through which the Mortgaged Vessels are held. We can provide a full organizational chart if helpful for WJA's review.
"Collateral Agent" means Pinnacle Trust & Agency Services Inc., a corporation organized under the laws of the State of Delaware, with its principal office at One Liberty Plaza, 44th Floor, New York, NY 10006, in its capacity as collateral agent and security trustee for the Secured Parties under the Credit Agreement and the other Loan Documents, and its successors and assigns in such capacity.
[C&H Comment 3]: We confirm that Pinnacle Trust & Agency Services Inc. is the sole party entitled to receive insurance proceeds in its capacity as Collateral Agent and Security Trustee. No insurance proceeds should be paid directly to any individual Lender. The loss payee clauses and broker's letter of undertaking should reflect this structure. Please confirm that WJA is in agreement on this point.
"Credit Agreement" means that certain Senior Secured Revolving Credit Agreement dated as of , among Thalassa Shipping & Logistics SA, as Borrower, the Guarantors party thereto from time to time, the Lenders party thereto from time to time, and Meridian Atlantic Bank, National Association, as Administrative Agent, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
[C&H Comment 4]: This is a placeholder cross-reference. The date of the Credit Agreement will be inserted upon execution. At the time of this markup, we are working from the near-final draft of the Credit Agreement dated July 3, 2023. All cross-references in this Assignment to specific sections of the Credit Agreement are based on that draft and will need to be confirmed against the execution version.
"Pyreval Insurance" means hull and machinery insurance maintained in respect of any Mortgaged Vessel in accordance with Section 3.01 and, to the extent applicable, Section 3.04 of this Assignment.
[C&H Comment 5]: We propose expanding the definition of "Pyreval Insurance" to explicitly include increased value insurance (IV), which is customarily grouped with H&M in shipping finance transactions. This is consistent with London market practice, where IV policies are typically placed as part of the same insurance package and are subject to the same loss payee and assignment mechanics. If WJA prefers to maintain IV as a separately defined term, we are content with that approach provided the cross-references throughout are consistent.
"Insurance Broker" means .
[C&H Comment 6]: The WJA draft defined "Insurance Broker" generically without identifying the actual broker. Given the importance of the broker's role in the insurance assignment structure—including the obligation to provide a broker's letter of undertaking, to hold documents to the Collateral Agent's order, and to direct claims proceeds—we believe it is important to name Trident Marine Insurance Brokers Ltd. as the designated broker. Trident Marine has acted as TSL's marine insurance broker for over twelve years and is one of the leading marine insurance brokers operating in the London market.
At the same time, we have preserved the Borrower's right to replace the Insurance Broker with a broker of recognized standing in the London marine insurance market, subject to prior written notice to (but not the consent of) the Collateral Agent. Requiring the Collateral Agent's consent to a broker change would give the Lender group an undue degree of control over a core commercial relationship of the Borrower. The notice requirement provides the Collateral Agent with adequate opportunity to raise concerns regarding the proposed replacement broker.
"Lenders" means, collectively, (i) Meridian Atlantic Bank, National Association (Commitment: $45,000,000), (ii) Nordkapp Maritime Finance AG (Commitment: $40,000,000), (iii) Clearwater Commercial Lending LLC (Commitment: $35,000,000), and (iv) Eastbourne Capital Partners LLP (Commitment: $30,000,000), with total aggregate commitments of $150,000,000, and their respective successors and assigns.
[C&H Comment 7]: No change proposed to this definition. We include the individual commitment amounts here for completeness and ease of reference.
"Loss Payee" means Pinnacle Trust & Agency Services Inc., as Collateral Agent for the benefit of the Secured Parties, in its capacity as loss payee under the .
[C&H Comment 8]: The WJA draft conflated the loss payee provisions applicable to H&M and war risk policies with those applicable to P&I coverage. This is a fundamental structural issue. P&I insurance operates under a fundamentally different framework from hull insurance: P&I is mutual insurance provided by clubs on a "pay to be paid" basis, and loss payee provisions of the type used in hull insurance are neither customary nor workable in the P&I context. Instead, the interests of the Secured Parties in respect of P&I are typically protected through a letter of undertaking from the P&I club (see Sections 3.03 and 4.03 below). We have revised the definition of "Loss Payee" to clarify that it applies only to H&M, war risk, and IV policies.
"Mortgaged Vessels" means the eighteen (18) vessels listed on Schedule I hereto, each of which is or will be subject to a first-priority ship mortgage in favor of the Collateral Agent for the benefit of the Secured Parties, with an aggregate appraised fair market value of approximately $780,000,000 (based on the appraisals to be delivered by Seastone Maritime Advisors Ltd.).
[C&H Comment 9]: Schedule I (List of Mortgaged Vessels) is to be attached and populated upon receipt of the final Seastone Maritime Advisors Ltd. appraisals, which we understand are expected on or about July 10, 2023. The schedule should include, for each vessel: (a) vessel name, (b) IMO number, (c) official number, (d) flag state, (e) year built, (f) vessel type (dry bulk carrier or tanker), (g) gross tonnage, (h) deadweight tonnage, and (i) Seastone appraised fair market value. The cross-reference to the ship mortgage form and the Seastone valuations should be confirmed at that time.
For reference, the minimum collateral coverage ratio under the Credit Agreement is 140% of the aggregate outstanding facility obligations. At full draw of $150,000,000, the minimum required aggregate collateral value would be $210,000,000. The anticipated aggregate appraised value of $780,000,000 for the eighteen Mortgaged Vessels provides substantial headroom. We note that TSL's total fleet comprises forty (40) vessels (twenty-eight dry bulk carriers and twelve tankers); only eighteen are being pledged as Mortgaged Vessels under this facility.
"P&I Insurance" means protection and indemnity insurance maintained in respect of any Mortgaged Vessel through in accordance with Section 3.03 of this Assignment.
[C&H Comment 10]: The WJA draft defined P&I Insurance by reference to "a P&I club of recognized standing," which is vague and could, in theory, encompass fixed-premium P&I or non-International Group clubs that may not provide the same level of pooled cover. We propose specifying that the P&I club must be a member of the International Group of P&I Clubs. The International Group comprises thirteen member clubs that collectively provide approximately 90% of the world's ocean-going tonnage with mutual P&I cover, with pooled claims-sharing arrangements providing cover up to approximately $3.1 billion per claim. This is the standard requirement in institutional shipping finance and provides the Lenders with the highest level of assurance regarding the quality and depth of P&I coverage.
"Required Insurances"
"Secured Obligations" means all obligations of the Assignor and each other Loan Party under the Credit Agreement, the Guarantee Agreements, and each other Loan Document, including all principal, interest, fees, expenses, indemnities, and other amounts payable thereunder, in each case whether now existing or hereafter arising.
[C&H Comment 11]: This definition cross-references and is intended to be co-extensive with the definition of "Secured Obligations" in the Credit Agreement. No substantive change is proposed.
"War Risk Insurance" means insurance maintained in respect of any Mortgaged Vessel in accordance with Section 3.02 of this Assignment.
[C&H Comment 12]: We propose expanding the definition of War Risk Insurance to explicitly include "piracy" and "cyber-attack perils," both of which are increasingly standard components of marine war risk coverage. Given the trading patterns of TSL's fleet—which regularly transits the Mediterranean, Black Sea, and transatlantic routes, and may from time to time trade in areas designated by the Joint War Committee as additional premium areas—it is important that the definition accurately reflects the full scope of war risk coverage maintained by the Borrower. The original WJA draft covered only "war, strikes, and terrorism," which is unduly narrow.
Section 1.02 — Interpretation
(a) In this Assignment, unless the context otherwise requires:
(i) the term "including" means "including, without limitation," and shall not be construed to limit any general statement to the specific or similar items or matters immediately following it;
(ii) headings and the table of contents are inserted for convenience of reference only and shall not affect the interpretation of this Assignment;
(iii) references to the singular include the plural and vice versa, and references to one gender include the other genders;
(iv) references to any law, statute, regulation, or rule shall be construed as a reference to such law, statute, regulation, or rule as amended, re-enacted, or replaced from time to time;
(v) references to any agreement or document shall be construed as a reference to such agreement or document as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms;
(vi) references to "Business Day" shall have the meaning ascribed to such term in the Credit Agreement;
(vii) references to currency amounts are to United States Dollars unless otherwise stated; and
(viii)
[C&H Comment 13]: We have proposed the addition of clause (viii), which establishes a hierarchy of documents in the event of a conflict between this Assignment and the Credit Agreement. The WJA draft was silent on this point. Given that the Credit Agreement is the principal document governing the facility and that this Assignment is a Loan Document entered into pursuant to the Credit Agreement, it is appropriate and customary to provide that the Credit Agreement prevails in the event of an inconsistency. This protects both parties from unintended consequences arising from drafting discrepancies.
ARTICLE II — ASSIGNMENT
Section 2.01 — Grant of Assignment
(a) As security for the due and punctual payment and performance of the Secured Obligations, the Assignor hereby assigns, transfers, and sets over to the Collateral Agent, for the benefit of the Secured Parties, all of the Assignor's right, title, and interest in and to placed or to be placed on or in respect of each Mortgaged Vessel, including:
(i) all Pyreval Insurance policies;
(ii) all P&I Insurance entries;
(iii) all War Risk Insurance policies;
(iv) all Increased Value Insurance policies (to the extent maintained);
together, in each case, with all claims, returns of premium, and other sums payable or to become payable under or in respect of such insurances.
[C&H Comment 14]: The WJA draft purported to assign "all insurances and reinsurances of whatsoever nature" in respect of the Mortgaged Vessels. This formulation is overbroad and would sweep in commercial insurance policies that are not relevant to the Lenders' security interest and that the Borrower maintains for ordinary business purposes. For example, TSL maintains charterers' liability insurance, FD&D cover, and certain fleet-wide commercial liability policies that are not related to the collateral security package and should not be subject to this Assignment.
We have proposed limiting the scope of the assignment to the "Required Insurances" as defined in Section 1.01—namely, H&M, P&I, War Risk, and (to the extent voluntarily maintained) Increased Value Insurance. We have also added a new paragraph (b) providing an explicit carve-out for insurances that are not Required Insurances. This is consistent with market practice in shipping finance transactions, where the assignment is limited to the categories of insurance that are directly relevant to the protection of the Lenders' collateral.
[C&H Comment 15]: This is a critical addition. An assignment of insurances in the context of ship finance is invariably by way of security only. The Borrower remains the named assured and retains the beneficial interest in the policies, with the Collateral Agent holding a security interest. This distinction is particularly important for P&I club entries, where the member's rights and obligations under the club rules cannot be transferred to a non-member. P&I clubs may decline to recognize an assignment that purports to transfer membership or beneficial ownership. The "by way of security only" formulation is standard in all major shipping finance jurisdictions and is consistent with English law principles governing the assignment of insurance.
Section 2.02 — Scope of Assigned Insurances
Without limiting the generality of Section 2.01, the insurances assigned pursuant to this Assignment include all policies, entries, cover notes, certificates, endorsements, and other documentation evidencing or relating to the following categories of insurance in respect of each Mortgaged Vessel:
(i) hull and machinery insurance, including any additional perils clauses;
(ii) increased value insurance (to the extent maintained by the Assignor);
(iii) protection and indemnity insurance, including coverage for pollution liability, wreck removal, and cargo liability;
(iv) war risks insurance, including coverage for strikes, riots, civil commotion, terrorism, piracy, kidnap and ransom, and related perils;
(vi) any additional insurances that the Credit Agreement or this Assignment requires the Assignor to maintain in respect of the Mortgaged Vessels.
[C&H Comment 16]: Loss of hire insurance is not a required insurance under the term sheet dated March 15, 2023, or under the near-final Credit Agreement dated July 3, 2023. The WJA draft's inclusion of loss of hire insurance in subclause (v) could be read as creating an affirmative covenant to maintain such coverage, which was not agreed in the term sheet negotiations. TSL does not currently maintain loss of hire insurance on the Mortgaged Vessels, as this is a commercial decision that depends on charter coverage, market conditions, and cost-benefit analysis.
We have proposed revising subclause (v) to clarify that loss of hire insurance is included within the scope of the assignment only "to the extent maintained by the Assignor on a voluntary basis," with an express statement that the Assignor is not required to maintain loss of hire insurance. If the Borrower does choose to maintain loss of hire insurance in the future, the assignment would attach to such insurance, but there is no obligation to do so.
Section 2.03 — Continuing Security
This Assignment constitutes continuing security for the Secured Obligations and shall remain in full force and effect until all Secured Obligations have been irrevocably paid in full , all commitments of the Lenders under the Credit Agreement have been terminated, . No partial payment of the Secured Obligations, no release of any other security for the Secured Obligations, and no other dealing between the parties shall discharge or otherwise affect the Assignor's obligations under this Assignment.
[C&H Comment 17]: We have added the customary qualifier regarding Letters of Credit. The Credit Agreement includes a letter of credit sublimit of $20,000,000, and any outstanding Letters of Credit must be addressed before this Assignment can be released and terminated. The added language provides that the Assignment will continue in effect until all Letters of Credit have expired, been returned, or been cash collateralized or backstopped. This is consistent with the termination and release provisions in Section 9.06 below and with market practice for collateral security documents in revolving credit facilities with LC sublimits.
ARTICLE III — REQUIRED INSURANCES
Section 3.01 — Hull & Machinery Insurance
(a) The Assignor shall maintain, or shall procure that the relevant vessel-owning subsidiary maintains, Pyreval Insurance on each Mortgaged Vessel at all times during the term of the Credit Agreement, in compliance with the following requirements:
(i) Underwriters. Pyreval Insurance shall be placed with underwriters of recognized international standing on the London market, the Scandinavian market, approved by the Collateral Agent ;
(ii) Insured Value. The insured value of each Mortgaged Vessel under its Pyreval Insurance shall be not less than the greater of (A) the fair market value of such Mortgaged Vessel (as determined by the most recent appraisal delivered pursuant to the Credit Agreement) and (B) of the Allocated Loan Amount for such Mortgaged Vessel (as determined in accordance with the Credit Agreement);
(iii) Policy Terms. Pyreval Insurance shall be on the terms of the Institute Time Clauses — Hulls (1/10/83) (including the 1/11/95 amendments), the International Hull Clauses (01/11/03), or such other standard form hull clauses as may be customary in the London marine insurance market and approved by the Collateral Agent (acting reasonably);
(iv) Collision Liability. Pyreval Insurance shall include ; and
(v) Additional Perils. Pyreval Insurance shall include coverage for additional perils as is customary in the London market for vessels of the type, age, and trading pattern of the Mortgaged Vessels.
[C&H Comment 18]: The WJA draft required an insured value equal to 125% of the Allocated Loan Amount for each Mortgaged Vessel. We propose reducing this to 120%, which is more consistent with market practice for senior secured revolving credit facilities in the shipping sector. We note that 120% is the threshold specified in the term sheet agreed between the parties. Furthermore, the collateral coverage ratio at the aggregate level provides substantial additional comfort: the aggregate fair market value of the Mortgaged Vessels (approximately $780,000,000) must at all times equal or exceed 140% of the aggregate outstanding facility obligations (at full draw of $150,000,000, the minimum required collateral value is $210,000,000). The combination of vessel-level insurance at 120% of the Allocated Loan Amount and portfolio-level collateral coverage of 140% provides robust protection for the Lender group.
[C&H Comment 19]: The WJA draft required a "full collision clause" (4/4ths), under which the H&M policy would cover the full amount of the assured's liability in the event of a collision. We propose accepting the standard industry practice of three-fourths (3/4ths) collision liability under the H&M policy, with the remaining one-fourth (1/4th) covered under P&I Insurance. This is the standard structure in the London market: the Institute Time Clauses — Hulls provide 3/4ths collision liability cover, and the remaining 1/4th is covered by the P&I club as a standard feature of P&I cover. Requiring 4/4ths under the hull policy would result in additional premium cost without any additional protection to the Lenders, as the aggregate coverage remains the same.
(b) Pyreval Insurance shall be placed through the Insurance Broker or another insurance broker of recognized standing in the London or Scandinavian marine insurance market .
(c) The maximum deductible under any Pyreval Insurance policy shall not exceed per vessel per incident .
[C&H Comment 20]: The WJA draft set the maximum deductible at $100,000 per vessel per incident. We propose increasing this to $150,000, which is more reflective of current market norms for vessels in the size range and trading pattern of TSL's fleet. The Mortgaged Vessels include both dry bulk carriers and tankers, many of which are modern vessels with high insured values; a $150,000 deductible is at the lower end of the range typically seen in the market for vessels of this quality. We have also proposed the addition of flexibility for the Collateral Agent to approve higher deductibles on a case-by-case basis, subject to a "not to be unreasonably withheld or delayed" standard. This provides operational flexibility in the event that market conditions change or that specific policy renewals involve higher deductible levels at improved premium rates.
Section 3.02 — War Risk Insurance
(a) The Assignor shall maintain, or shall procure that the relevant vessel-owning subsidiary maintains, War Risk Insurance on each Mortgaged Vessel at all times during the term of the Credit Agreement, in compliance with the following requirements:
(i) Covered Perils. War Risk Insurance shall cover war, strikes, riots, civil commotion, terrorism, piracy, and related risks;
(ii) Policy Terms. War Risk Insurance shall be on the terms of the Institute War and Strikes Clauses — Hulls — Time (1/11/95), or such other standard form war risk clauses as may be customary in the London marine insurance market;
(iii) Insured Value. The insured value under War Risk Insurance for each Mortgaged Vessel shall be not less than the insured value under Pyreval Insurance for such Mortgaged Vessel; and
(iv) Sanctions Compliance.
[C&H Comment 21]: We have proposed the addition of subclause (iv) to address the practical reality that virtually all war risk policies placed in the London market now include a sanctions limitation and exclusion clause. These clauses provide that the insurer shall not be liable to pay any claim or provide any benefit to the extent that the provision of such cover, payment, or benefit would expose the insurer to any sanction, prohibition, or restriction under United Nations resolutions, or the trade or economic sanctions laws or regulations of the European Union, the United Kingdom, or the United States. If the Assignment were construed as requiring the Borrower to procure war risk coverage that does not contain such clauses, the Borrower would be in a position where compliance is effectively impossible. The proposed language clarifies that the inclusion of standard sanctions clauses does not constitute a breach of the Assignment, while preserving the Borrower's obligation to comply with sanctions under Section 5.08.
(b) Additional War Risk Premium Areas. The Assignor acknowledges that the Joint War Committee of Lloyd's Market Association designates certain areas as additional premium areas from time to time (the "JWC Listed Areas").
[C&H Comment 22]: The WJA draft required the prior written consent of the Administrative Agent before any Mortgaged Vessel could trade in a JWC Listed Area. This is operationally impractical for a fleet of eighteen vessels engaged in international trade across the Mediterranean, the Black Sea, and transatlantic routes. The JWC Listed Areas are updated regularly and include areas through which TSL's vessels regularly transit or trade. Requiring prior consent for each voyage into a listed area would create significant operational delays and could result in demurrage costs, breach of charterparty obligations, and loss of commercial opportunities.
We propose replacing the consent requirement with a notice-only requirement of three (3) Business Days' prior written notice. The Borrower will pay all additional war risk premiums, so there is no additional cost exposure to the Lenders. The notice obligation provides the Collateral Agent with visibility into the fleet's trading patterns and the opportunity to raise concerns if a particular voyage appears to create an undue risk. This is the approach taken in the vast majority of shipping finance transactions involving fleets of this size.
Section 3.03 — Protection & Indemnity Insurance
(a) The Assignor shall maintain, or shall procure that the relevant vessel-owning subsidiary maintains, P&I Insurance for each Mortgaged Vessel at all times during the term of the Credit Agreement, in compliance with the following requirements:
(i) P&I Club. P&I Insurance shall be entered with a protection and indemnity association that is a member of the International Group of P&I Clubs;
(ii) Cover Limits. P&I Insurance shall provide cover for not less than the highest available limit under the rules of the relevant P&I club (currently approximately $3.1 billion per claim through the International Group pooling and reinsurance arrangements);
(iii) Scope of Cover. P&I Insurance shall include, without limitation, coverage for:
(A) third-party liability for personal injury and death;
(B) cargo liability;
(C) pollution liability (including TOPIA and STOPIA cover);
(D) wreck removal;
(E) one-fourth (1/4th) collision liability (to the extent not covered under Pyreval Insurance); and
(F) such other risks as are customarily covered by first-class International Group P&I Clubs;
(iv) Letter of Undertaking. The Assignor shall .
[C&H Comment 23]: The WJA draft required the Borrower to "procure" a letter of undertaking from the P&I club in a form specified by the Collateral Agent. We note that P&I clubs are mutual associations with their own rules and protocols regarding the issuance of letters of undertaking in the context of secured financing. While it is standard and customary for P&I clubs to issue LOUs in connection with ship finance transactions, the Borrower cannot compel a P&I club to issue an LOU in any particular form. P&I clubs have standard-form LOUs that they use in ship mortgage transactions, and these forms are generally well established and accepted by the lending community.
We have therefore proposed a "commercially reasonable efforts" standard, which requires the Borrower to make genuine and sustained efforts to procure the LOU but does not make the Borrower absolutely liable for the club's refusal to issue one on particular terms. The form of the LOU should be agreed between the P&I club and the Collateral Agent, with each acting reasonably. We are confident that the relevant P&I clubs (TSL's fleet is currently entered with two International Group clubs) will issue LOUs in their standard form without difficulty, but we cannot commit to a specific form at this stage.
[C&H Comment 24]: This is an important clarifying provision. The WJA draft treated P&I entries in the same manner as hull insurance policies for purposes of the assignment in Article II. However, P&I is fundamentally different from commercial insurance: it is mutual insurance provided by a club to its members, and the member's entry cannot be assigned to a third party in the traditional sense. P&I clubs are entitled under their rules to refuse to recognize an assignment of a member's entry, and any purported assignment could, in the worst case, jeopardize the member's cover.
The standard approach in shipping finance—and the approach we have proposed here—is to treat the P&I provisions as a covenant to maintain the entry and to procure a letter of undertaking, rather than as an assignment of the entry itself. This approach is well established in the market and is accepted by all major lending institutions active in shipping finance.
Section 3.04 — Increased Value Insurance
The Assignor maintain Increased Value Insurance on each Mortgaged Vessel in an amount not exceeding twenty-five percent (25%) of the H&M insured value of such Mortgaged Vessel. To the extent that the Assignor maintains Increased Value Insurance, such insurance shall be subject to the assignment created by this Assignment and shall be included in the Pyreval Insurance for purposes of the loss payee and additional assured provisions of Article IV.
[C&H Comment 25]: The WJA draft made the maintenance of Increased Value Insurance mandatory ("shall maintain"). We propose replacing this with a permissive formulation ("may, at its option, maintain"). Increased Value Insurance is a form of cover that enables the assured to top up the total insured value of a vessel above the declared H&M value, and it is typically placed as a commercial decision by the shipowner based on the vessel's market value, the H&M insured value, and premium costs. Making IV insurance mandatory would impose an additional premium cost on the Borrower without a corresponding benefit to the Lenders, particularly given that the H&M insured value is already required to be not less than 120% of the Allocated Loan Amount. If the Borrower does elect to maintain IV insurance, it will be subject to this Assignment and will benefit the Secured Parties, but the decision to maintain it should rest with the Borrower.
Section 3.05 — General Insurance Requirements
(a) All Required Insurances shall be maintained with insurers, underwriters, or P&I clubs of recognized international standing. Without limiting the foregoing, each individual underwriter on any Pyreval Insurance, War Risk Insurance, or Increased Value Insurance policy shall have a financial strength rating of not less than A- from Standard & Poor's Ratings Services, or A- from A.M. Best Company, or an equivalent rating from another internationally recognized rating agency .
[C&H Comment 26]: P&I clubs are mutual associations operated on a non-profit basis for the benefit of their members. As such, they are not rated by the traditional credit rating agencies (S&P, A.M. Best, Fitch, Moody's) in the same manner as commercial insurers and reinsurers. Requiring a minimum credit rating for P&I clubs would be impossible to satisfy and would effectively require the Borrower to obtain fixed-premium P&I from a commercial insurer, which would be inconsistent with the requirement in Section 3.03 to maintain P&I with an International Group club. The carve-out we have proposed is standard in all shipping finance documentation.
(b) All Required Insurances shall be denominated and payable in United States Dollars.
(c) All Required Insurances shall be on terms and conditions acceptable to the Collateral Agent .
[C&H Comment 27]: The WJA draft gave unfettered discretion to the Collateral Agent to determine whether the terms and conditions of the Required Insurances are acceptable. This is not acceptable to the Borrower. An unfettered discretion could be exercised unreasonably or in bad faith, and could require the Borrower to maintain insurance on terms or at a cost that is disproportionate to the Lenders' legitimate interests. We propose the addition of an "acting reasonably" qualifier, which is the standard formulation in shipping finance documentation. We have added the further gloss "in a manner consistent with prudent lending practice in the shipping finance market" to provide an objective benchmark against which reasonableness can be assessed.
(d) No Required Insurance policy shall contain any provision for automatic termination or cancellation upon the occurrence of an event of default under the Credit Agreement .
[C&H Comment 28]: We agree with this provision in principle. However, the WJA draft did not distinguish between automatic termination provisions (which are properly excluded) and standard cancellation-by-notice mechanics, which are a feature of virtually all London market hull and war risk policies. Under the standard London market clause, the insurer may cancel the policy by giving 14 days' notice to the assured (or, where a loss payee clause is in place, to the loss payee). This is a protective mechanism for the lender, not a threat to coverage, because it gives the loss payee advance notice of cancellation and an opportunity to intervene. We have proposed a clarifying proviso to avoid any suggestion that the inclusion of a standard cancellation-by-notice clause would be a breach of this Assignment.
ARTICLE IV — LOSS PAYEE AND ADDITIONAL ASSURED PROVISIONS
Section 4.01 — Loss Payee
(a) The Assignor shall procure that Pinnacle Trust & Agency Services Inc., as Collateral Agent for the benefit of the Secured Parties, is named as sole loss payee under all Pyreval Insurance, War Risk Insurance, and Increased Value Insurance policies maintained in respect of each Mortgaged Vessel. The loss payee endorsement on each such policy shall be in the form set out in Exhibit C hereto or in such other form as may be customary in the London marine insurance market and acceptable to the Collateral Agent (acting reasonably).
(b)
[C&H Comment 29]: The WJA draft provided that all claims proceeds, regardless of amount, would be paid directly to the Collateral Agent. This is operationally burdensome and inconsistent with market practice. For a fleet of eighteen vessels engaged in active international trade, minor hull claims arise regularly—scraping damage in port, minor engine room incidents, small cargo damage claims. Requiring all such proceeds to be paid to the Collateral Agent and then disbursed back to the Borrower against repair invoices would create unnecessary administrative costs and delays, potentially affecting the Borrower's ability to effect timely repairs.
We have proposed a threshold of $1,000,000 per incident (the "Claims Threshold"), below which proceeds are paid directly to the Assignor for application to repair costs, provided no Event of Default exists. Above the threshold, proceeds are paid to the Collateral Agent for disbursement against repair invoices in accordance with Article VI. For Total Loss proceeds, all amounts are paid to the Collateral Agent. This structure balances the Lenders' legitimate security interest with the Borrower's operational needs and is consistent with the approach taken in comparable shipping finance transactions.
[C&H Comment 30]: We have also proposed adding, in Article VI below, language providing that the Collateral Agent will apply H&M claims proceeds above the threshold to the repair or replacement of the relevant Mortgaged Vessel unless an Event of Default has occurred and is continuing, in which case the Collateral Agent may apply proceeds to the Secured Obligations in accordance with the waterfall in the Credit Agreement. See Section 6.02 for the detailed mechanics.
Section 4.02 — Additional Assured
The Assignor shall procure that the Collateral Agent, the Administrative Agent, and each Lender are named as additional assureds under all Pyreval Insurance, War Risk Insurance, and Increased Value Insurance policies maintained in respect of each Mortgaged Vessel .
[C&H Comment 31]: We propose that additional assured status be granted on a "for their respective rights and interests" (FTRROI) basis rather than as full co-assureds. This is the standard approach in secured ship finance and serves an important purpose: it protects the Borrower's coverage from being affected by the actions or omissions of the Lenders or the Collateral Agent. Under a full co-assured arrangement, the insurer could, in theory, avoid the entire policy on the basis of a misrepresentation or non-disclosure by one of the co-assureds, including the Lenders. Under FTRROI, the interest of each additional assured is insured separately, and the coverage of one additional assured is not affected by the acts or omissions of another.
The FTRROI endorsement also clarifies that the additional assureds' interest is limited to their financial interest as secured creditors. This is appropriate because the Lenders do not operate, manage, or control the Mortgaged Vessels and should not be treated as having the same insurable interest as the shipowner.
Section 4.03 — P&I — Notice of Assignment and Letter of Undertaking
(a) In lieu of the loss payee and additional assured provisions set forth in Sections 4.01 and 4.02 (which are not applicable to P&I Insurance), the Assignor shall procure, or shall use commercially reasonable efforts to procure, that the relevant P&I club issues a letter of undertaking (an "LOU") to the Collateral Agent in respect of each Mortgaged Vessel's P&I entry. Each LOU shall, to the extent obtainable from the relevant P&I club, provide that:
(i) the P&I club acknowledges the assignment of insurances in favor of the Collateral Agent ;
(ii) the P&I club will notify the Collateral Agent in writing not less than fourteen (14) days prior to any cessation, cancellation, or material change in the cover provided to the relevant Mortgaged Vessel, or as soon as reasonably practicable in the case of cessation for non-payment of calls;
(iii) the P&I club will pay any claims proceeds due in respect of a Total Loss of a Mortgaged Vessel (including wreck removal and pollution recovery proceeds, after satisfaction of any regulatory obligations) to the Collateral Agent; and
(iv)
[C&H Comment 32]: The WJA draft required an absolute set-off waiver from the P&I club. This is often resisted by P&I clubs, which maintain the right to set off unpaid calls, premiums, and other amounts owed by the member against claims proceeds as a fundamental feature of mutual insurance. The member's obligation to pay calls is the consideration for the club's obligation to pay claims, and clubs are generally reluctant to waive their set-off rights in favor of a third-party secured creditor.
We have proposed a "commercially reasonable efforts" standard, which requires the Borrower to make genuine efforts to obtain the set-off waiver but does not make the Borrower absolutely liable if the club declines. This is consistent with our comment on Section 3.03(a)(iv) above. In practice, many International Group clubs will agree to a limited set-off waiver in respect of Total Loss proceeds, but the scope of the waiver varies by club.
The form of the LOU will need to be agreed between the relevant P&I club and the Collateral Agent, and we propose attaching the agreed form as Exhibit B.
ARTICLE V — COVENANTS OF THE ASSIGNOR
Section 5.01 — Maintenance of Insurances
(a) The Assignor shall maintain, or shall procure that the relevant vessel-owning subsidiary maintains, all Required Insurances in full force and effect at all times during the term of the Credit Agreement, in accordance with the requirements of this Assignment and the Credit Agreement.
(b) The Assignor shall pay, or shall procure the payment of, all premiums, calls, contributions, and other amounts due in respect of the Required Insurances when the same become due and payable in accordance with the terms of the relevant policy, club rules, or market practice.
[C&H Comment 33]: P&I clubs operate on a call basis that is fundamentally different from the fixed-premium structure of hull and war risk insurance. Each policy year, the club levies an advance call on its members to fund the anticipated claims costs for that year. If claims costs exceed expectations, the club may levy a supplementary call. Conversely, if claims costs are lower than expected, the club may declare a release call (returning a portion of the premium to members). These calls are determined by the club's board of directors and are not within the Borrower's control.
The WJA draft did not address this distinction, simply requiring the Borrower to "pay all premiums when due." We have proposed clarifying language that acknowledges the call-based nature of P&I premiums and the Borrower's obligation to pay all types of calls when levied. This is important for completeness and to avoid any argument that a supplementary call is not a "premium" for purposes of this Assignment.
Section 5.02 — Renewal
The Assignor shall renew, or shall procure the renewal of, all Required Insurances not less than days prior to the expiry of each policy period and shall provide evidence of such renewal to the Collateral Agent promptly upon renewal .
[C&H Comment 34]: The WJA draft required renewal thirty (30) days prior to expiry. This is unrealistic given London market renewal practices. H&M and war risk policies are typically renewed close to the policy expiry date, and it is common for renewal negotiations to be ongoing up to and even past the expiry date, with retroactive coverage confirmed by cover notes or binding slips. P&I entries are typically renewed on the February 20 common renewal date for the International Group, with renewal terms often not finalized until shortly before that date.
We propose fourteen (14) days as a more realistic and workable timeframe. We have also proposed permitting cover notes or binding slips as interim evidence of renewal, as final policy documentation (including signed slips, policy wording, and endorsements) may take several weeks or even months to be produced by the London market. This is standard practice and is well understood by all participants in the shipping finance market.
Section 5.03 — No Amendments or Cancellations
The Assignor shall not amend, cancel, or allow to lapse any Required Insurance without the prior written consent of the Collateral Agent .
[C&H Comment 35]: The blanket prohibition on any amendment without the Collateral Agent's prior consent is overly broad and would impose unnecessary administrative burden on the Borrower for routine and immaterial changes. We have proposed an exception for amendments that are not materially adverse to the interests of the Secured Parties, with specific examples of the types of changes that would fall within this exception. This preserves the Collateral Agent's right to approve any material change to the Required Insurances while permitting the Borrower to manage its insurance program without requiring Lender approval for every minor administrative matter.
Section 5.04 — Notice of Claims
The Assignor shall promptly notify the Collateral Agent in writing of any casualty, loss, accident, damage, or claim involving a Mortgaged Vessel where the estimated amount of the loss, damage, or claim exceeds (or the equivalent in any other currency), such notice to include a brief description of the incident, the Mortgaged Vessel involved, the estimated amount of the loss or claim, and the identity of the relevant insurer or P&I club.
[C&H Comment 36]: The WJA draft set the claims notification threshold at $250,000. We propose increasing this to $500,000, which is more appropriate for a fleet of this size and value. With eighteen Mortgaged Vessels in active international trade, minor claims in the range of $250,000 to $500,000 arise with some frequency—small hull scraping incidents, minor cargo claims, routine P&I matters. Requiring notification to the Collateral Agent of every such claim would be administratively burdensome for the Borrower and would generate a volume of notices that the Collateral Agent would find difficult to process and evaluate meaningfully. A $500,000 threshold ensures that the Collateral Agent is informed of significant incidents while avoiding notification fatigue.
Section 5.05 — Compliance with Policy Terms