ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — DO NOT DISTRIBUTE
CHAPTER 11 CONTINGENCY PLAYBOOK
COMPREHENSIVE EXECUTION PLAN
Thalassa Americas Inc.
Prepared for Thalassa Shipping & Logistics Société Anonyme
ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
January 10, 2023
Prepared by:
Nathaniel Bower, Partner Amy Chesterton, Lead Associate Nathan Ikeda, Associate
CALDERWOOD & HARKNESS LLP 780 Third Avenue New York, NY 10017 Tel: (212) 555-7800
Fax: (212) 555-7801
Matter Number: 1044-00003
DISTRIBUTION LIST
This document is being distributed on a strictly confidential and privileged basis to the following individuals. No further distribution, copying, or dissemination is authorized without the prior written consent of Calderwood & Harkness LLP.
TABLE OF CONTENTS
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
A. Purpose of the Playbook
This document sets forth the comprehensive contingency plan for a voluntary Chapter 11 petition filing by Thalassa Americas Inc. ("TAI"), a Delaware C-Corporation and the wholly-owned subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"), a Greek société anonyme organized under the laws of the Hellenic Republic. The purpose of this playbook is to ensure that TAI and its parent, TSL, are positioned to execute a Chapter 11 filing on short notice should circumstances necessitate the commencement of a court-supervised restructuring.
This playbook has been prepared by Calderwood & Harkness LLP ("C&H") in parallel with the ongoing out-of-court restructuring negotiations that are currently being conducted with the principal creditor constituencies of TSL and TAI. The playbook is intended to be activated only if the out-of-court path fails to achieve an executable Restructuring Support Agreement ("RSA") before the expiration of the forbearance standstill period, or if certain other trigger events occur that make an in-court filing necessary or advisable to protect the interests of the Thalassa enterprise.
The playbook is designed as a "break-the-glass" document. All draft pleadings, engagement letters, communications materials, and supporting analyses have been prepared on a standby basis such that a filing could be executed on as little as 48 hours' notice from the date the TSL board of directors authorizes the commencement of Chapter 11 proceedings. In an emergency scenario — for example, if the Senior Secured Credit Facility were to be accelerated — the filing could potentially be accomplished within 24 hours using an abbreviated activation sequence.
It is important to emphasize that the existence of this playbook does not constitute a decision to file for Chapter 11 protection. As discussed in Section XV below, the out-of-court restructuring remains the preferred path, and C&H continues to recommend vigorous pursuit of the RSA negotiations. This playbook is a prudent contingency measure that serves both as a genuine fallback in the event that the out-of-court process collapses and as a credible negotiating tool that may encourage creditor participation in the consensual process.
B. Context: The Liquidity Crisis
TSL is a Greek-headquartered private shipping and logistics conglomerate founded in 1987 by the Kostandinos family. Over its more than 35 years of operation, TSL has grown to become a significant participant in the global dry-bulk and container shipping markets. The company currently operates a fleet of 38 dry-bulk carriers and 12 container vessels — a total of 50 oceangoing vessels — and employs approximately 4,200 workers globally, of whom approximately 680 are based in the United States and employed by TAI.
TSL's financial performance has deteriorated significantly over the past twelve months. For fiscal year 2021, TSL reported consolidated revenue of approximately €1.42 billion. For fiscal year 2022, TSL's estimated consolidated revenue declined to approximately €987 million, representing a year-over-year decline of approximately 30.5%. This decline has been driven overwhelmingly by the collapse in dry-bulk charter rates that has characterized the global shipping market since early 2022.
TAI is TSL's U.S. operating subsidiary. TAI maintains its principal office at 1400 McKinney Street, Suite 2200, Houston, Texas 77010, and is organized as a C-Corporation under the laws of the State of Delaware. TAI's employer identification number is 84-3291057, and its registered agent in Delaware is Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. TAI's U.S.-side operations include Houston terminal operations, the scheduling and management of Jones Act-exempt foreign-flag vessels calling at U.S. ports, and a domestic freight brokerage business. For fiscal year 2021, TAI reported revenue of approximately $312 million. For fiscal year 2022, TAI's estimated revenue declined to approximately $198 million, reflecting the same market headwinds affecting the TSL enterprise as a whole.
The immediate cause of the current liquidity crisis is the dramatic decline in dry-bulk charter rates. The Baltic Dry Index ("BDI"), the industry's principal benchmark for dry-bulk shipping rates, declined approximately 58% between January 2022 and September 2022. This decline has had a devastating effect on TSL's and TAI's revenue and cash flow. The average daily time charter equivalent ("TCE") rate earned by TSL's fleet fell from approximately $24,800 per day in fiscal year 2021 to approximately $11,200 per day in the third quarter of 2022 — a decline of nearly 55%.
The rate decline has been accompanied by a significant erosion in vessel values. TSL's 50-vessel fleet was appraised by Drakos Maritime Valuations Ltd. at $891 million as of January 2022. A subsequent appraisal by the same firm, dated November 1, 2022, valued the fleet at $623 million — a decline of $268 million, or approximately 30.1%, in less than ten months. This decline in asset values has further eroded the collateral base supporting TSL's secured indebtedness.
As a result of these developments, TAI and TSL have breached three financial covenants under the $685 million Senior Secured Credit Facility, as follows:
Minimum Liquidity Covenant. The credit agreement requires that TSL and its consolidated subsidiaries maintain minimum unrestricted cash and cash equivalents of $40 million at all times. This covenant was breached on September 15, 2022, when consolidated liquidity fell to $27.3 million — a shortfall of $12.7 million below the required minimum.
Maximum Net Leverage Ratio. The credit agreement requires that the ratio of consolidated net debt to consolidated trailing twelve-month EBITDA not exceed 5.50x. As of September 30, 2022, the net leverage ratio stood at 7.82x, calculated as net debt of $770.9 million divided by LTM EBITDA of $98.6 million. This represents a breach by a margin of 2.32 turns.
Minimum Interest Coverage Ratio. The credit agreement requires that the ratio of consolidated LTM EBITDA to consolidated LTM interest expense be no less than 2.50x. As of September 30, 2022, the interest coverage ratio stood at 1.74x, calculated as LTM EBITDA of $98.6 million divided by LTM interest expense of $56.7 million. This represents a breach by a margin of 0.76x.
In response to these covenant breaches, TSL and TAI negotiated a Forbearance Agreement with the lender syndicate, which was executed on October 10, 2022. The Forbearance Agreement provided for a 90-day standstill through January 8, 2023, during which the lenders agreed not to exercise remedies arising from the covenant defaults. The first extension of the Forbearance Agreement, extending the standstill period to March 8, 2023, was granted on January 8, 2023. Further extensions may be sought, but there can be no assurance that additional extensions will be obtainable.
In addition to the covenant breaches under the Senior Secured Credit Facility, TAI missed a scheduled interest payment of $2,062,500 on its $50 million 8.25% Senior Unsecured Notes on December 1, 2022. The 30-day cure period under the indenture expired on January 1, 2023 without the payment having been made, constituting an event of default under the Senior Unsecured Notes indenture.
As of September 30, 2022, TSL's total consolidated indebtedness across all facilities, trade payables, and other obligations was approximately $847.3 million. A detailed breakdown of this debt is provided in Section IV of this playbook.
C. Dual-Track Strategy
TSL and TAI are pursuing a dual-track restructuring strategy, as follows:
Track 1: Out-of-Court Restructuring. The preferred outcome is an out-of-court restructuring effectuated through a Restructuring Support Agreement. Negotiations are ongoing with the principal creditor constituencies and their respective counsel and financial advisors. This track offers significant advantages in terms of cost, speed, confidentiality, and operational disruption avoidance. The out-of-court track is addressed in Section XV of this playbook.
Track 2: Chapter 11 Contingency Filing. If the out-of-court negotiations fail, if the forbearance is terminated, or if an acceleration event occurs, TAI would commence a voluntary Chapter 11 case. Critically, the filing would be limited to TAI only — TSL, the Greek parent, would not be a filing entity. TSL's Greek and Mediterranean operations would continue outside of U.S. bankruptcy jurisdiction. This playbook addresses Track 2 in its entirety.
The dual-track strategy is designed to maximize optionality for the Thalassa enterprise. By maintaining a fully prepared Chapter 11 filing capability, TSL and TAI can negotiate with creditors from a position of strength, while simultaneously ensuring that a court-supervised restructuring can be commenced rapidly if the consensual process breaks down.
D. Summary of Chapter 11 Key Parameters
The following is a high-level summary of the key parameters of the proposed Chapter 11 filing, each of which is addressed in detail in subsequent sections of this playbook:
II. PROPOSED FILING ENTITY AND ORGANIZATIONAL STRUCTURE
A. Filing Entity: Thalassa Americas Inc.
The proposed filing entity is Thalassa Americas Inc. ("TAI"), a Delaware C-Corporation and the wholly-owned subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"). TAI was incorporated in the State of Delaware on March 14, 2014, and has continuously maintained its corporate existence since that date. TAI's registered agent in Delaware is Capitol Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801.
TAI is the operating entity through which TSL conducts the substantial majority of its business in the United States. TAI's principal office is located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010, and its employer identification number is 84-3291057. TAI's U.S.-side operations encompass three principal business lines:
(a) Houston Terminal Operations. TAI operates a terminal facility in the Port of Houston through which TSL's dry-bulk and container vessels load and discharge cargo. The terminal is operated under a long-term lease agreement with the Port of Houston Authority.
(b) Jones Act-Exempt Foreign-Flag Vessel Scheduling. TAI manages the scheduling and logistics for TSL's fleet of foreign-flag vessels calling at U.S. ports, coordinating with port authorities, stevedoring companies, and customs brokers to ensure efficient vessel turnaround times.
(c) Domestic Freight Brokerage. TAI operates a freight brokerage business that arranges inland transportation of cargo to and from the Houston terminal and other U.S. ports, providing door-to-door logistics services for TSL's customers.
TAI's current officers are as follows:
• Marcus Hale — President
• Diana Restrepo — Vice President, Finance
• Jonathan Kurtz — Vice President, Operations
TAI employs approximately 680 workers in the United States, including terminal operations personnel, logistics coordinators, administrative and financial staff, and management.
From a debt perspective, TAI is a co-borrower for the $85 million U.S. Tranche (Term Loan B) under the Senior Secured Credit Facility, as described in Section IV.A below. In addition, TAI is the obligor on a subordinated intercompany promissory note in the principal amount of $76.4 million payable to TSL, bearing interest at a rate of 5.0% per annum. The intercompany note is subordinated to all of TAI's external indebtedness and raises certain legal issues — including questions regarding intercompany claims, equitable subordination, and substantive consolidation — that are analyzed in separate memoranda referenced in Section XIV.A of this playbook.
B. Non-Filing Entities
The following entities within the Thalassa corporate family are not contemplated as filing entities:
Thalassa Shipping & Logistics Société Anonyme (TSL). TSL is the Greek parent company and the ultimate holding entity for the Thalassa enterprise. TSL is organized as a société anonyme under the laws of the Hellenic Republic, with its registered headquarters at 42 Akti Miaouli, Piraeus 18538, Greece. TSL will not file a Chapter 11 petition. TSL's Greek and Mediterranean operations will continue outside of U.S. bankruptcy jurisdiction, either under the forbearance arrangement or under a separately negotiated out-of-court restructuring. If circumstances deteriorate further, TSL could potentially avail itself of insolvency proceedings under Greek Law 4738/2020, but no such filing is currently contemplated. Chapter 15 coordination issues are addressed in Section XIII of this playbook.
KFO Holdings SA. KFO Holdings SA is the Kostandinos family holding company that holds approximately 80% of the equity of TSL (with Dimitrios Kostandinos holding 62% and Elena Kostandinos-Pavlou holding 18%). KFO Holdings is not an operating entity and has no independent filing contemplated.
Vessel-Owning Special Purpose Vehicles (SPVs). TSL's fleet of 50 vessels is owned through 14 vessel-owning special purpose vehicles organized under the laws of various jurisdictions, principally the marshall Islands, Liberia, and Malta. The equity interests in these SPVs are pledged as collateral under the Senior Secured Credit Facility. These SPVs are not currently contemplated as filing entities in the Chapter 11 case. However, as a contingency measure, a Motion for Joint Administration has been drafted and is included in the standby filing package (see Section XVI.A, Item 12) in the event that circumstances change and one or more SPVs are required to file for Chapter 11 protection.
C. Organizational Chart
The corporate structure of the Thalassa enterprise is summarized as follows:
KFO Holdings SA (Kostandinos Family Holding Company)
• Dimitrios Kostandinos: 62% equity interest
• Elena Kostandinos-Pavlou: 18% equity interest
• KFO Holdings SA holds 80% of TSL equity
Non-Family Equity Holders hold the remaining 20% of TSL equity
Thalassa Shipping & Logistics SA (TSL) — Greek Parent (Piraeus, Greece)
• TSL holds 100% of the equity of Thalassa Americas Inc. (TAI) — Delaware, USA (the proposed filing entity)
• TSL holds 100% of the equity of 14 Vessel-Owning SPVs (Marshall Islands, Liberia, Malta, and other jurisdictions)
A detailed organizational chart in graphical format is attached as Appendix A to this playbook.
D. Chapter 15 Coordination Considerations
Although no Greek filing is currently contemplated, it is important to address the potential intersection of a TAI Chapter 11 case with potential Greek insolvency proceedings for TSL, should circumstances deteriorate further.
If TSL were to commence insolvency proceedings in Greece under Law 4738/2020 (the Greek Debt Settlement & Insolvency Code, effective as of March 1, 2021), a Chapter 15 recognition proceeding could be initiated in the United States to coordinate the Greek proceeding with TAI's Chapter 11 case. Chapter 15 of the Bankruptcy Code, which implements the UNCITRAL Model Law on Cross-Border Insolvency, provides a mechanism for recognition of foreign insolvency proceedings and for coordination between U.S. and foreign courts.
TSL's center of main interests ("COMI") is located in Piraeus, Greece. TSL has maintained its registered headquarters at 42 Akti Miaouli, Piraeus 18538, Greece since its founding. TSL's principal operations, management, and administrative functions are conducted from Piraeus. For purposes of Chapter 15, Greek insolvency proceedings commenced by TSL would be recognized as a "foreign main proceeding," which would entitle TSL to the full panoply of relief available under Chapter 15, including recognition of the Greek stay of proceedings and enforcement of Greek court orders in the United States.
C&H is coordinating with Vassiliou & Demetriou Law Offices (Alexandros Vassiliou, lead partner; 15 Vasilissis Sofias Avenue, Athens 10674, Greece) on Greek law implications. Vassiliou & Demetriou are serving as TSL's Greek counsel in connection with the restructuring and have been providing guidance on the interaction between Greek insolvency law and U.S. bankruptcy law. A separate memorandum analyzing COMI and Chapter 15 issues was prepared on November 8, 2022. A further memorandum analyzing Greek Law 4738/2020 and cross-border coordination considerations was prepared on January 15, 2023 by Nathan Ikeda of C&H, with input from Alexandros Vassiliou.
III. VENUE SELECTION AND ELIGIBILITY
A. Proposed Venue
C&H recommends that the Chapter 11 petition for Thalassa Americas Inc. be filed in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. This recommendation is based on the analysis of venue propriety and strategic considerations set forth below.
B. Venue Basis
Venue for a voluntary Chapter 11 petition is governed by 28 U.S.C. §1408, which provides that a case under title 11 may be commenced in the district court for the district in which the domicile, residence, principal place of business in the United States, or principal assets in the United States of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district.
TAI's principal place of business and principal assets in the United States are located in Houston, Texas. TAI maintains its principal office at 1400 McKinney Street, Suite 2200, Houston, Texas 77010, and has done so continuously for over five years. TAI's Houston terminal operations — one of TSL's three terminal operations globally (alongside Piraeus and Thessaloniki) — represent the single most significant physical asset operated by TAI in the United States. TAI's approximately 680 U.S. employees are concentrated in the Houston metropolitan area. TAI's books and records are maintained in Houston, its management operates from Houston, and its business functions are directed from Houston.
Accordingly, venue in the Southern District of Texas is proper under 28 U.S.C. §1408(1) on the basis that TAI's principal place of business and principal assets in the United States have been located in the Southern District of Texas for the entirety of the 180 days preceding the anticipated filing date.
C. Alternative Venues Considered
C&H considered two alternative venues before recommending the Southern District of Texas:
District of Delaware. TAI is a corporation organized under the laws of the State of Delaware. Accordingly, venue in the District of Delaware would be proper under 28 U.S.C. §1408(1) on the basis of TAI's state of incorporation, which establishes domicile for corporate debtors. The District of Delaware is a well-established venue for complex restructuring cases and maintains sophisticated bankruptcy judges and local practitioners experienced in Chapter 11 matters. However, C&H recommends the Southern District of Texas over Delaware due to the strong operational nexus between TAI and Houston, the proximity of key employees and terminal operations to the court, and the benefits of having the debtor's management, witnesses, and operational infrastructure close to the courthouse. In addition, the Southern District of Texas has an established and well-regarded track record in complex restructuring cases, particularly in the energy and maritime sectors, which is directly relevant to TAI's business.
Southern District of New York. A potential nexus to the Southern District of New York exists by virtue of C&H's offices and the presence of certain financial counterparties in Manhattan. However, the Southern District of New York would require a more attenuated basis for venue selection, as TAI does not maintain a domicile, principal place of business, or principal assets in the district. While the Southern District of New York is a premier venue for complex restructurings, C&H does not believe there is a sufficient statutory basis for venue selection in that district absent the establishment of additional nexus, and the Houston Division provides the stronger venue both legally and operationally.
D. Eligibility Under §109
TAI satisfies the eligibility requirements for a Chapter 11 debtor under §109 of the Bankruptcy Code. Specifically:
(a) TAI is a "person" eligible to be a debtor under §109(a). TAI is a corporation organized under the laws of the State of Delaware, with a domicile, place of business, and property in the United States. Section 109(a) requires only that the person reside or have a domicile, a place of business, or property in the United States.
(b) TAI is not excluded from eligibility under §109(b). TAI is not a railroad, a domestic insurance company, a bank, a savings bank, a cooperative bank, a savings and loan association, a building and loan association, a homestead association, a New England member of a Federal Home Loan Bank, a credit union, or an industrial bank or similar institution which is an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act. Accordingly, TAI is not subject to any of the exclusions from eligibility set forth in §109(b).
(c) TAI may be a debtor under Chapter 11 pursuant to §109(d), which provides that only a person that may be a debtor under Chapter 7 may be a debtor under Chapter 11, except that a stockbroker or a commodity broker may not be a debtor under Chapter 11. TAI is not a stockbroker or commodity broker, and therefore satisfies the requirements of §109(d).
IV. CAPITAL STRUCTURE AND DEBT OVERVIEW
A. Senior Secured Credit Facility
The principal indebtedness of the Thalassa enterprise is the Senior Secured Credit Facility, the key terms of which are summarized below.
Date of Agreement: June 15, 2019
Borrower: Thalassa Shipping & Logistics SA (with Thalassa Americas Inc. as co-borrower for the U.S. Tranche)
Administrative Agent and Collateral Agent: Nordbank International AG, Bahnhofstrasse 78, 8001 Zürich, Switzerland (Henrik Lüdemann, Managing Director)
Total Commitment: $685,000,000, comprised of the following tranches:
(i) Term Loan A: Original commitment of $400 million, amortizing at $10 million per quarter. As of September 30, 2022, 13 quarterly amortization payments have been made (Q3 2019 through Q3 2022), representing aggregate amortization of $130 million. Outstanding principal balance: $270 million.
(ii) Revolving Credit Facility: Commitment of $200 million. As of September 30, 2022, $185 million was drawn and outstanding, leaving $15 million of undrawn availability. Outstanding balance: $185 million.
(iii) U.S. Tranche (Term Loan B): $85 million non-amortizing term loan with bullet maturity. TAI is a co-borrower on this tranche. Outstanding balance: $85 million.
Total Outstanding Under the Senior Secured Credit Facility: $540 million ($270M + $185M + $85M)
Maturity: June 15, 2024
Interest Rate: SOFR + 375 basis points; default rate is an additional 200 basis points above the applicable rate
CUSIP (Term Loan A): 87265BAA7
Collateral: The Senior Secured Credit Facility is secured by first-priority liens on:
(a) All 50 vessels in the TSL fleet (38 dry-bulk carriers and 12 container vessels), through preferred ship mortgages on each vessel;
(b) The Houston terminal lease and all leasehold improvements;
(c) All accounts receivable of TSL, TAI, and the vessel-owning SPVs;
(d) The equity interests in TAI;
(e) The equity interests in each of the 14 vessel-owning SPVs.
Lender Syndicate: The Senior Secured Credit Facility is held by a syndicate of nine lending institutions, as follows:
(Note: Percentages are calculated based on each lender's outstanding position relative to total outstanding; percentages may not sum precisely to 100% due to pro rata allocation across tranches.)
Ad Hoc Group of Senior Secured Lenders: An ad hoc group of senior secured lenders was formed in August 2022, comprising four of the nine syndicate members. The Ad Hoc Group holds aggregate outstanding claims of $372 million, representing approximately 54.3% of the total outstanding balance under the Senior Secured Credit Facility (constituting a blocking position for certain consent thresholds). The Ad Hoc Group members are:
• Nordbank International AG — $137 million
• Harborstone Bank plc — $95 million
• Triton Credit Partners LP — $68 million
• Continental Maritime Lending GmbH — $72 million
The Ad Hoc Group is represented by Whitfield, Crane & Burgess LLP (Graham Whitfield III, lead partner; 51 West 52nd Street, 38th Floor, New York, NY 10019). The Ad Hoc Group's financial advisor is Draycott Advisory Group LLC (Vanessa Chow, partner; 520 Madison Avenue, 20th Floor, New York, NY 10022).
A complete lender syndicate composition table, including contact persons and Ad Hoc Group membership status, is attached as Appendix C.
B. Mezzanine Notes (Second Lien)
Date of Agreement: June 15, 2019 (concurrent with the Senior Secured Credit Facility)
Holder: Dralvecen Mezzanine Capital LLC ("BMC") — Rebecca Marsh, Senior Partner; 600 Lexington Avenue, 22nd Floor, New York, NY 10022
Counsel to BMC: Kellner & Foss LLP (Theodore Kellner, lead partner; 1185 Avenue of the Americas, 30th Floor, New York, NY 10036)
Outstanding Balance: $112,300,000 (original principal amount of $100 million, plus $12.3 million of paid-in-kind ("PIK") interest that has been capitalized and added to the principal balance through September 30, 2022)
Interest Rate: 11.5%, with a PIK toggle feature allowing the borrower to elect to capitalize interest rather than pay in cash. Since Q2 2022, all interest on the Mezzanine Notes has been paid in kind, reflecting the liquidity constraints of the Thalassa enterprise.
Maturity: December 15, 2024
Security: Second-priority liens on the same collateral package securing the Senior Secured Credit Facility (all 50 vessels, Houston terminal lease, accounts receivable, and equity interests in TAI and the 14 vessel-owning SPVs). The lien priority between the first-lien and second-lien holders is governed by an Intercreditor Agreement dated June 15, 2019, entered into between Nordbank International AG (as first-lien collateral agent) and BMC.
The Intercreditor Agreement includes customary standstill provisions restricting BMC's exercise of remedies for a period of 180 days following the delivery of an enforcement notice (subject to certain exceptions), and waterfall provisions governing the distribution of collateral proceeds.
C. Unsecured Notes
Date of Issuance: March 1, 2020
Outstanding Balance: $50,000,000
Interest Rate: 8.25% per annum, payable semi-annually in cash on June 1 and December 1 of each year
CUSIP: 87265BAB5
Maturity: March 1, 2025
Indenture Trustee: Garrison Trust Company, 100 Wall Street, 16th Floor, New York, NY 10005
Event of Default: TAI failed to make the scheduled interest payment of $2,062,500 due on December 1, 2022. The 30-day cure period provided under the indenture expired on January 1, 2023, without the payment having been made. This constitutes an event of default under the indenture, entitling the indenture trustee or the holders of at least 25% in principal amount of the outstanding notes to declare the principal amount immediately due and payable. As of the date of this playbook, no acceleration has been declared, but the event of default is outstanding and unwaived.
Noteholder Group: An informal group of unsecured noteholders has been formed and is represented by Ashford, Brightmoor Group & McKay PC (Carolyn Brightmoor Group, lead partner; 299 Park Avenue, 18th Floor, New York, NY 10171). The composition and aggregate holdings of the noteholder group have not been publicly disclosed.
D. Intercompany Note
TAI is the obligor on a subordinated intercompany promissory note in the principal amount of $76,400,000 payable to TSL, the Greek parent company. The intercompany note bears interest at a rate of 5.0% per annum and is subordinated in right of payment to all of TAI's external indebtedness, including the Senior Secured Credit Facility, the Mezzanine Notes, and the Unsecured Notes.
The intercompany note is a significant legal issue in any Chapter 11 scenario. TSL's $76.4 million claim against TAI would be the largest unsecured claim in the estate (excluding deficiency claims), and its status as an insider claim creates potential exposure to equitable subordination challenges and raises the specter of substantive consolidation motions by other creditor constituencies. These issues are analyzed in greater detail in Section XIV.A of this playbook, and in a separate memorandum dated December 5, 2022.
E. Trade Creditors
As of September 30, 2022, TAI had approximately $38.7 million in outstanding trade payables owed to vendors, suppliers, and service providers. Trade creditors span a wide range of industries and services, including bunker fuel suppliers, port services providers, stevedoring companies, equipment maintenance firms, IT and software vendors, and professional services firms.
The single largest trade creditor is Olympian Fuel & Supply SA, a bunker fuel supplier headquartered at 7 Iroon Polytechniou, Piraeus 18535, Greece. TAI owes Olympian Fuel & Supply approximately $9.2 million for bunker fuel deliveries. This claim raises special considerations under maritime law, as bunker fuel suppliers may assert maritime liens against the vessels to which fuel was delivered. Maritime lien and §503(b)(9) considerations applicable to trade claims in the Thalassa case are analyzed in a separate memorandum dated December 18, 2022, and are discussed further in Section XIV.C of this playbook.
F. Total Debt Summary
The following table summarizes the total indebtedness of the Thalassa enterprise as of September 30, 2022:
The "Other Obligations" category of $29.9 million includes accrued interest, deferred revenue, pension and benefit obligations, and miscellaneous accrued liabilities. A detailed breakdown of this category will be prepared and included in the Schedules of Assets and Liabilities to be filed in the Chapter 11 case.
V. VALUATION CONTEXT
A. Fleet Appraisal
The value of TSL's fleet of 50 oceangoing vessels is the single most significant driver of the enterprise valuation and, accordingly, of the recovery analysis for each class of creditors. The most recent fleet appraisal was conducted by Drakos Maritime Valuations Ltd.
Appraiser: Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, Managing Director; 28 Poseidonos Avenue, Piraeus 18531, Greece). Drakos Maritime Valuations is a recognized independent maritime appraisal firm with extensive experience in the valuation of dry-bulk and container tonnage.
Appraisal Date: November 1, 2022
Methodology: Drakos conducted its appraisal on a charter-free, "as-is-where-is" basis, applying a combination of comparable sale transactions, discounted cash flow analysis, and replacement cost methodologies, consistent with industry practice for maritime vessel valuations.
Results: The fleet was valued at an aggregate of $623 million, broken down as follows:
Prior Appraisal: Drakos previously appraised the TSL fleet at $891 million as of January 2022, reflecting the significantly more favorable market conditions prevailing at that time. The decline in appraised value from January 2022 to November 2022 was $268 million, representing a decrease of approximately 30.1%. This decline is consistent with the broader market deterioration driven by the collapse in dry-bulk charter rates and the general softening of asset values in the global shipping sector.
A detailed fleet summary table setting forth vessel names, types, years built, flag states, and individual appraised values is attached as Appendix B.
B. Enterprise Value
In addition to the fleet appraisal prepared by Drakos Maritime Valuations, Kensington Veltrian Partners LLC ("KHP") has prepared an independent enterprise value estimate for the Thalassa enterprise.
Advisor: Kensington Veltrian Partners LLC (James Calloway, Managing Director; 300 Park Avenue, 12th Floor, New York, NY 10022)
Date of Analysis: November 2022
Results: KHP estimates the total enterprise value of TSL (including TAI and the vessel-owning SPVs) at a range of $580 million to $640 million, with a midpoint of $610 million.
KHP's enterprise value estimate reflects the application of multiple valuation methodologies, including a discounted cash flow analysis based on projected charter rates and operating costs, an analysis of comparable public company trading multiples, and a review of recent comparable M&A transactions in the shipping sector. The resulting range accounts for range market scenarios and operating assumptions.
The enterprise value range of $580 million to $640 million compares to the Drakos fleet appraisal of $623 million as follows: the fleet appraisal captures the liquidation value of the vessels on a charter-free basis, while the KHP enterprise value estimate captures the going-concern value of the operating enterprise, including the value of commercial relationships, contracts, and the assembled workforce. The convergence of these two measures suggests that the incremental going-concern value above the asset liquidation value is relatively modest in the current market environment, which is consistent with the depressed charter rate environment.
C. Recovery Analysis — Chapter 11 Waterfall
Based on KHP's enterprise value estimate, the following recovery analysis applies to each class of creditors in a Chapter 11 scenario:
Senior Secured Debt ($540 million). At the midpoint enterprise value of $610 million, the senior secured lenders would receive a full recovery on their $540 million in claims, with $70 million of value remaining for distribution to junior creditors. However, at the low end of the enterprise value range ($580 million), the senior secured lenders would receive a full recovery of their claims with only $40 million remaining for junior creditors. There is limited but meaningful recovery cushion for the senior secured lenders across the valuation range.
Mezzanine Notes ($112.3 million). The Mezzanine Notes represent the fulcrum security in this capital structure. At the midpoint enterprise value of $610 million, the recovery for the Mezzanine Notes would be approximately 62.3%, calculated as ($610M minus $540M) divided by $112.3M, which equals $70 million of available value divided by $112.3 million of claims. At the low end of the valuation range ($580 million), the recovery would be approximately 35.6% ($40M ÷ $112.3M). At the high end ($640 million), recovery would be approximately 89.0% ($100M ÷ $112.3M). As the fulcrum security, the Mezzanine Notes are expected to be the class with the greatest negotiating leverage and the most at stake in the plan formulation process.
Unsecured Notes ($50 million). Based on the KHP waterfall analysis, the estimated recovery for the unsecured noteholders is approximately 8 to 14 cents on the dollar across the range of enterprise values. This assumes that the Mezzanine Notes are not fully satisfied and that any residual value available to general unsecured creditors (after satisfaction of the senior secured and mezzanine claims) is distributed pro rata among unsecured creditors.
Trade Creditors and Intercompany Note. General trade creditors and the intercompany note held by TSL are deeply impaired or eliminated in a Chapter 11 scenario. Any recovery for these classes would depend on the availability of residual value after satisfaction of all senior classes, which appears to be minimal based on current valuations. Certain trade creditors may benefit from maritime lien priority or §503(b)(9) administrative priority for goods delivered within 20 days prepetition, which would improve their individual recoveries.
It is important to emphasize that the foregoing recovery analysis is preliminary and is based on the November 2022 enterprise value estimates. Actual recoveries will depend on a number of factors, including fleet values at the time of plan confirmation, charter rate trends, operating performance during the Chapter 11 case, the terms of the plan of reorganization, and the outcome of negotiations with creditor constituencies.
VI. DIP FINANCING
A. Overview of Proposed DIP Facility
Debtor-in-possession financing will be essential to fund TAI's ongoing operations during the Chapter 11 case. Without DIP financing, TAI would lack sufficient liquidity to pay employee wages, maintain terminal operations, fund critical vendor payments, and meet its obligations to the estate and the court.
C&H has negotiated a proposed DIP financing facility on behalf of TAI. The key terms of the proposed facility are as follows:
The participation of Nordbank (as the administrative agent for the prepetition Senior Secured Credit Facility and a member of the Ad Hoc Group) and Triton (also a member of the Ad Hoc Group) as DIP lenders is significant. It signals the support of a controlling portion of the prepetition senior secured lender group for the Chapter 11 process and provides a measure of assurance to the court and to other parties in interest that the case has a viable financing backstop.
Transaction Timeline: A term sheet for the DIP facility was received from Nordbank and Triton on December 15, 2022. C&H annotated the term sheet and returned it with comments on December 18, 2022. A marked draft of the full DIP Credit Agreement was prepared on December 22, 2022. Negotiations on the terms of the DIP Credit Agreement are substantially complete, and the agreement is ready for execution upon the decision to file.
B. Key Terms and Conditions
The DIP Credit Agreement contains the following key terms and conditions:
Superpriority Administrative Expense Claim. The DIP lenders will be granted a superpriority administrative expense claim under §364(c)(1) of the Bankruptcy Code, senior to all other administrative expense claims in the case (subject to the carve-out for professional fees).
Priming Liens. The DIP lenders will be granted priming liens under §364(d) of the Bankruptcy Code on all assets of TAI, senior to all prepetition liens, including the first-priority liens of the prepetition senior secured lenders and the second-priority liens of BMC.
Adequate Protection for Prepetition Secured Lenders. As adequate protection for the diminution in value of their collateral positions resulting from the DIP priming liens and the use of cash collateral, the prepetition senior secured lenders will receive:
(a) Replacement liens on all postpetition assets of TAI, junior only to the DIP liens and the carve-out;
(b) Adequate protection payments in the form of current interest at the non-default contract rate;
(c) Periodic adequate protection reporting, including 13-week cash flow updates and monthly operating reports.
Interim Draw. Up to $30 million will be available to TAI upon entry of the interim DIP order (to be sought within 3 to 5 days of the petition date). This interim draw will provide the immediate liquidity needed to stabilize operations, pay employees, fund critical vendor payments, and meet the initial expenses of the Chapter 11 case.
Milestones. The DIP Credit Agreement will include case milestones tied to the proposed timeline for the Chapter 11 case, including deadlines for the filing of a plan of reorganization, approval of a disclosure statement, and confirmation of the plan. Failure to meet any milestone constitutes an event of default under the DIP facility. The specific milestones are expected to be substantially consistent with the timeline set forth in Section VIII of this playbook.
Carve-Out. The DIP order will include a carve-out for the payment of (a) allowed fees and expenses of estate professionals (debtor's counsel, financial advisor, CRO) and (b) allowed fees and expenses of professionals retained by the Official Committee of Unsecured Creditors. The carve-out will be subject to a cap to be negotiated and will survive the occurrence of a termination event under the DIP facility. The carve-out is essential to ensure that the estate and the committee have independent professional representation throughout the case, as required by the Bankruptcy Code and well-established case law.
Events of Default. The DIP Credit Agreement will contain customary events of default, including: failure to meet case milestones, material adverse change in TAI's business or financial condition, conversion of the case to Chapter 7, appointment of a Chapter 11 trustee, dismissal of the case, material breach of the DIP budget, and cross-default to other obligations.
C. DIP Budget
A critical element of the DIP financing is the DIP budget, which governs TAI's use of DIP proceeds and cash collateral during the Chapter 11 case. The DIP budget is based on the 13-week cash flow model prepared by Kensington Veltrian Partners, which is updated on a rolling basis. The DIP budget provides for the following principal categories of expenditure:
(a) Ongoing TAI Operations: Payroll, terminal operations, logistics, vessel scheduling, and other core business expenses required to maintain TAI as a going concern during the Chapter 11 case.
(b) Professional Fees: Legal, financial advisory, CRO, claims agent, and other professional fees and expenses incurred in connection with the Chapter 11 case.
(c) Adequate Protection Payments: Current interest payments to the prepetition senior secured lenders as adequate protection for the use of their cash collateral.
(d) Critical Vendor Payments: Payments to prepetition critical vendors authorized by the court under the Critical Vendor Motion.
The total estimated administrative costs for the first 12 months of the Chapter 11 case are approximately $18.5 million, as detailed in Section XI of this playbook. The DIP budget must be sufficient to fund these costs, in addition to TAI's ongoing operating expenses, throughout the anticipated duration of the case.
D. Adequate Protection Analysis
The DIP financing motion will require a showing of adequate protection for the prepetition secured lenders whose liens will be primed by the DIP facility. The adequacy of protection is evaluated based on the equity cushion in the collateral, the debtor's ongoing business performance, and the additional protections provided under the DIP order.
As of the November 1, 2022 Drakos appraisal, the fleet was valued at $623 million, compared to the prepetition senior secured debt of $540 million. This yields an adequate protection cushion of $83 million, or approximately 15.4% of the senior secured debt. While the adequacy of this cushion is a matter of some debate (particularly in a declining market), the 15.4% equity cushion provides meaningful protection against further collateral value erosion over the anticipated 12-month duration of the DIP facility.
In addition to the equity cushion, the following measures provide further adequate protection: