MEMORANDUM
CONFIDENTIAL / ATTORNEY-CLIENT PRIVILEGED
TO: Nathaniel Bower, Partner, Bankruptcy & Restructuring, Calderwood & Harkness LLP
FROM: Amy Chesterton, Lead Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
DATE: June 30, 2023
RE: Closing Memorandum — Restructuring Support Agreement Effective Date; Thalassa Shipping & Logistics Société Anonyme / Thalassa Americas Inc. (Matter No. 1044-00003)
CC: Colette Whitman (Billing Partner); Nathan Ikeda (Working Associate); Sylvia Hartwell (Specialist Partner, Tax)
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I. EXECUTIVE SUMMARY
The purpose of this memorandum is to confirm that all conditions precedent to closing under the Restructuring Support Agreement dated March 14, 2023 (the "RSA") have been satisfied (and that no conditions precedent were waived), that all transaction documents contemplated by the RSA have been duly executed and delivered by the respective parties, that all funds have been transferred in accordance with the Funds Flow Memorandum dated June 29, 2023 (the "Funds Flow Memorandum"), and that the transactions contemplated by the RSA (the "RSA Transactions") are effective as of June 30, 2023 (the "Closing Date").
The RSA was entered into among Thalassa Shipping & Logistics Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic ("TSL" or the "Company"), Thalassa Americas Inc., a Delaware C-Corporation ("TAI" and, together with TSL, the "Company Parties"), Nordbank International AG, in its capacities as Administrative Agent and Collateral Agent under the Senior Secured Credit Agreement (as defined below) ("Nordbank" or the "Agent"), the consenting senior secured lenders party thereto (the "Consenting Lenders"), Dralvecen Mezzanine Capital LLC, a Delaware limited liability company ("BMC"), and KFO Holdings Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic ("KFO" and, together with all of the foregoing, the "RSA Parties").
The closing of the RSA Transactions marks the culmination of the out-of-court restructuring of the Company Parties' capital structure, which successfully averted the need for a Chapter 11 filing by TAI in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the "Bankruptcy Court"). The transactions were consummated on the Closing Date, which is the outside date specified in Section 10.1(d) of the RSA for the occurrence of the closing, and accordingly the RSA outside date has been satisfied.
This memorandum sets forth: (i) a detailed background and procedural history of the restructuring; (ii) a summary of the RSA Transaction components; (iii) a comprehensive analysis of the satisfaction of all conditions precedent to closing; (iv) a summary of funds flow; (v) a complete list of executed documents; (vi) identification of post-closing matters and outstanding items; (vii) the current matter status and billing summary; and (viii) our conclusions and recommendations.
II. BACKGROUND AND PROCEDURAL HISTORY
A. The Liquidity Crisis
TSL is a Greek-headquartered shipping and logistics conglomerate founded in 1987 by the Kostandinos family. The Company operates a fleet of dry-bulk carriers and container vessels servicing global trade routes, with principal operations in the Mediterranean, Baltic, and transatlantic markets. TAI, the Company's wholly-owned U.S. subsidiary, is a Delaware C-Corporation with its principal office at 1400 McKinney Street, Suite 2200, Houston, Texas 77010 (EIN 84-3291057). TAI serves as the operational hub for the Company's Americas-facing business, including the Houston terminal operations, U.S.-flagged vessel management, and commercial chartering activities within the Western Hemisphere.
Beginning in mid-2022, the Company Parties faced a severe and rapidly escalating liquidity crisis driven primarily by the collapse in dry-bulk charter rates across global shipping markets. The Baltic Dry Index, the principal benchmark for the cost of shipping raw materials by sea, declined approximately 58% between January and September 2022, reflecting a dramatic weakening in global trade volumes and a surplus of available vessel capacity. This macro-level decline had a direct and material adverse impact on the Company's earnings: TSL's average daily Time Charter Equivalent ("TCE") rate fell from $24,800 per day in fiscal year 2021 to $11,200 per day in the third quarter of fiscal year 2022, representing a decline of approximately 55%.
The financial impact on the Company Parties was severe. TSL's consolidated revenue declined from €1.42 billion in fiscal year 2021 to an estimated €987 million in fiscal year 2022, a decline of approximately 30.5%. TAI's standalone revenue declined from $312 million in fiscal year 2021 to an estimated $198 million in fiscal year 2022, a decline of approximately 36.5%. These revenue declines, combined with the Company's significant fixed-cost base (crew costs, vessel maintenance, port charges, and debt service obligations), rapidly eroded cash reserves and placed the Company Parties in a position where they were unable to meet their debt service obligations as they came due.
As of September 30, 2022, the Company Parties' total consolidated indebtedness across all funded debt facilities was approximately $847.3 million, comprising the Senior Secured Credit Facility, the mezzanine notes, the senior unsecured notes, and the intercompany note, as further described in this memorandum.
B. Covenant Breaches and Forbearance
The deterioration in the Company Parties' financial performance resulted in multiple breaches of the financial covenants contained in the Senior Secured Credit Agreement:
• September 15, 2022 — Minimum Liquidity Covenant Breach. The Senior Secured Credit Agreement required the Company to maintain a minimum unrestricted cash balance of $40 million at all times, tested monthly. As of September 15, 2022, the Company's unrestricted cash balance had declined to approximately $27.3 million, representing a shortfall of $12.7 million below the required minimum. This constituted an Event of Default under Section 8.1(c) of the Senior Secured Credit Agreement.
• September 30, 2022 — Maximum Net Leverage Ratio Breach. The Maximum Net Leverage Ratio covenant, tested quarterly, required the Company to maintain a ratio of Net Debt to last-twelve-months ("LTM") Consolidated EBITDA of no greater than 5.50x. As of the September 30, 2022 testing date, the Company's Maximum Net Leverage Ratio stood at 7.82x, calculated as Net Debt of approximately $770.9 million divided by LTM Consolidated EBITDA of approximately $98.6 million. This represented a breach of the covenant by a margin of 2.32x, constituting an additional Event of Default under Section 8.1(c) of the Senior Secured Credit Agreement.
• September 30, 2022 — Minimum Interest Coverage Ratio Breach. The Minimum Interest Coverage Ratio covenant, also tested quarterly, required the Company to maintain a ratio of LTM Consolidated EBITDA to LTM Consolidated Interest Expense of no less than 2.50x. As of the September 30, 2022 testing date, the Company's Minimum Interest Coverage Ratio stood at 1.74x, calculated as LTM Consolidated EBITDA of approximately $98.6 million divided by LTM Consolidated Interest Expense of approximately $56.7 million. This represented a breach of the covenant by a margin of 0.76x, constituting a further Event of Default under Section 8.1(c) of the Senior Secured Credit Agreement.
In response to these Events of Default, and following urgent negotiations among the Company Parties, Nordbank (as Administrative Agent), and the Senior Secured Lender syndicate, the parties executed a Forbearance Agreement on October 10, 2022 (the "Forbearance Agreement"), pursuant to which the Consenting Lenders agreed to forbear from exercising their rights and remedies under the Senior Secured Credit Agreement for a period of 90 days through January 8, 2023, subject to compliance with certain milestones and conditions.
The Forbearance Agreement was subsequently extended twice to provide the Company Parties and their advisors with sufficient time to negotiate the out-of-court restructuring:
• January 8, 2023: First Amendment to the Forbearance Agreement was executed, extending the standstill period through March 8, 2023.
• March 8, 2023: Second Amendment to the Forbearance Agreement was executed, extending the standstill period through April 7, 2023, by which time the RSA had been executed and the parties were finalizing the definitive transaction documentation.
C. Engagement of Calderwood & Harkness LLP
Calderwood & Harkness LLP ("C&H") was engaged by the Company Parties on October 25, 2022, under matter number 1044-00003, to serve as restructuring counsel. The engagement was dual-track in nature: (i) Chapter 11 contingency planning for TAI, including the preparation of a voluntary petition, first-day motions, DIP financing motions, and retention applications on a standby basis; and (ii) negotiation and documentation of an out-of-court restructuring with the Company Parties' principal creditor constituencies. A retainer in the amount of $500,000 was deposited by the Company Parties on October 28, 2022, and applied against fees as incurred.
D. Negotiation Timeline Leading to RSA
The negotiation process that ultimately resulted in the execution of the RSA proceeded as follows:
• December 1, 2022: TAI missed the scheduled semi-annual interest payment on the $50 million 8.25% Senior Unsecured Notes due March 1, 2025 (CUSIP 87265BAB5) in the amount of $2,062,500 (calculated as $50 million × 8.25% ÷ 2). The Senior Unsecured Notes Indenture provided for a 30-day cure period, which expired on January 1, 2023, at which point an Event of Default under the Senior Unsecured Notes Indenture occurred.
• December 15, 2022: A DIP Term Sheet was received from Nordbank and Triton Credit Partners LP for a proposed $75 million superpriority debtor-in-possession credit facility, bearing interest at SOFR plus 600 basis points, to be utilized in the event a Chapter 11 filing became necessary. The DIP Term Sheet was never executed, and a draft DIP Credit Agreement dated December 22, 2022 was prepared but was also never executed.
• February 3, 2023: C&H circulated an initial RSA term sheet to all creditor constituencies, setting forth the principal commercial terms of the proposed out-of-court restructuring.
• February 10, 2023: Following receipt of comments from the Ad Hoc Group of Senior Secured Lenders (represented by Drummond & Renwick LLP), a revised RSA term sheet was circulated to all creditor groups, incorporating the Ad Hoc Group's principal comments regarding covenant levels, the PIK conversion mechanism, and the equity allocation to BMC.
• March 14, 2023: The RSA was executed by all RSA Parties, establishing the framework for the definitive transaction documentation and setting June 30, 2023 as the outside date for closing.
• May 2023: All definitive amendment documentation, the new second-lien note documentation, the equity subscription agreement, the intercreditor amendments, and all related ancillary documents were finalized and executed, as further described in Section III below.
III. SUMMARY OF RSA TRANSACTION COMPONENTS
The RSA Transactions consist of the following principal components, each of which is described in detail below.
A. Amendment No. 1 to Senior Secured Credit Agreement
Amendment No. 1 to the Senior Secured Credit Agreement (the "Amendment") amends the Senior Secured Credit Agreement originally dated June 15, 2019 (as amended, restated, supplemented, or otherwise modified from time to time prior to the date hereof, the "Senior Secured Credit Agreement"), entered into among TSL (as Borrower), TAI (as Co-Borrower with respect to the U.S. Tranche), Nordbank International AG (as Administrative Agent and Collateral Agent), and the nine-member lender syndicate identified therein.
Original Facility Terms. The Senior Secured Credit Agreement provided for total commitments of $685 million, structured in three tranches:
(a) Term Loan A ("TLA"): $400 million, amortizing in quarterly installments of $10 million, with a final maturity of June 15, 2024.
(b) Revolving Credit Facility (the "Revolver"): $200 million in total commitments, with a maturity date of June 15, 2024.
(c) U.S. Tranche / Term Loan B ("TLB"): $85 million, a bullet facility with a final maturity of June 15, 2024, for which TAI served as the designated Co-Borrower.
Amounts Outstanding as of September 30, 2022. As of September 30, 2022, the aggregate outstanding principal under the Senior Secured Credit Agreement was approximately $540 million, comprising:
(a) TLA: $270 million (after 13 quarters of $10 million amortization payments from the original $400 million principal amount);
(b) Revolver: $185 million drawn of the $200 million total commitment; and
(c) TLB: $85 million (bullet; no amortization).
Key Amendment Terms. The Amendment provides for the following principal modifications to the Senior Secured Credit Agreement:
(a) Maturity Extension. The stated maturity date of each of the TLA, the Revolver, and the TLB is extended from June 15, 2024 to June 15, 2027, providing the Company Parties with an additional three years to deleverage and restore financial performance.
(b) PIK Conversion. $75 million of outstanding TLA principal is converted from cash-pay to payment-in-kind ("PIK"), thereby reducing the Company Parties' near-term cash debt service obligations. PIK interest on the converted amount accrues at the applicable rate and is capitalized to the outstanding TLA principal balance on each quarterly interest payment date.
(c) Revolver Commitment Reduction. The total commitment under the Revolving Credit Facility is permanently reduced from $200 million to $150 million. Drawings in excess of the reduced commitment (i.e., $35 million of the $185 million then outstanding) were repaid on the Closing Date from the proceeds of the KFO equity contribution.
(d) Financial Covenant Reset. The financial covenants in the Senior Secured Credit Agreement are reset as follows:
(i) Maximum Net Leverage Ratio: Reset to 7.00x for the testing periods ending September 30, 2023 through June 30, 2025, stepping down to 6.25x for the testing periods ending September 30, 2025 through June 30, 2025, and further stepping down to 5.50x for the testing period ending December 31, 2025 (Q4 2025) and each testing period thereafter;
(ii) Minimum Liquidity Covenant: Reduced from $40 million to $30 million, tested monthly; and
(iii) Minimum Interest Coverage Ratio: Waived entirely through the testing period ending December 31, 2023 (Q4 2023), reinstated at 1.75x for the testing period ending March 31, 2024, and stepping up to 2.50x by the testing period ending December 31, 2025.
(e) Amendment Fee. An amendment fee in an amount equal to 1.00% of the aggregate outstanding principal under the Senior Secured Credit Agreement ($540 million × 1.00% = $5,400,000) is payable to the Consenting Lenders, paid in kind by addition to the outstanding principal balance (i.e., no cash movement is required).
(f) Default Interest Waiver. All default interest that accrued on the outstanding obligations under the Senior Secured Credit Agreement from and after the occurrence of the Events of Default through the Closing Date is waived retroactively, and the Company Parties shall have no obligation to pay such default interest.
The Amendment was executed and dated May 15, 2023, with an effectiveness conditioned upon the occurrence of the Closing Date (i.e., June 30, 2023).
B. Mezzanine Notes Exchange
Pursuant to the RSA, the Company's outstanding mezzanine indebtedness held by BMC was exchanged for a combination of new second-lien debt and equity in the Company.
Existing Mezzanine Notes. As of the Closing Date, the aggregate outstanding amount of the mezzanine notes was approximately $112.3 million, comprising the original $100 million principal amount plus approximately $12.3 million of PIK interest that had been capitalized to principal since the issuance of the notes. The mezzanine notes bore interest at a rate of 11.5% per annum on a PIK toggle basis and were secured by a second-priority lien on substantially all assets of the Company Parties, subordinate to the first-priority liens of the Senior Secured Lenders.
Exchange Terms. In exchange for the cancellation of the $112.3 million in mezzanine notes, BMC received the following:
(a) $60 million of New Second-Lien Notes: The new second-lien notes bear interest at a rate of 10.0% per annum, payable in kind, and mature in June 2028. The new second-lien notes are secured by a second-priority lien on the same collateral securing the Senior Secured Credit Facility, subject to the terms of the Amended and Restated Intercreditor Agreement.
(b) 15% Equity Interest in TSL: BMC received a 15% equity interest in TSL, issued in the form of newly authorized shares of the Company. This equity allocation represents a recovery enhancement for BMC and is intended to align BMC's interests with those of the Company and its equityholders on a go-forward basis.
The mezzanine notes exchange represents a debt haircut of approximately 46.6% on the debt component of the consideration, calculated as ($112.3 million − $60 million) ÷ $112.3 million = 46.6%. The equity component provides additional recovery to BMC, the value of which is dependent upon the future performance of TSL.
Impact on Equity Capitalization. Prior to the RSA Transactions, the equity capitalization of TSL was as follows: the Kostandinos family held 80% of TSL's equity (comprising Dimitrios Kostandinos at 62% and Elena Kostandinos-Pavlou at 18%), with the remaining 20% held by non-family holders. Following the issuance of the 15% equity interest to BMC, the Kostandinos family's collective interest was diluted from 80% to 68%, and the non-family holders' interest was diluted from 20% to 17%.
Transaction Documentation. The mezzanine notes exchange was documented through the following agreements:
(a) New Second-Lien Note Purchase Agreement, dated May 18, 2023, between TSL (as issuer) and BMC (as purchaser); and
(b) New Second-Lien Notes Indenture, dated May 18, 2023, between TSL (as issuer) and Garrison Trust Company (as indenture trustee), with the trustee's principal office located at 100 Wall Street, 16th Floor, New York, New York 10005.
C. Amended and Restated Intercreditor Agreement
In connection with the mezzanine notes exchange and the issuance of the new second-lien notes, the parties entered into an Amended and Restated Intercreditor Agreement (the "A&R ICA"), dated May 15, 2023, which amends and restates in its entirety the original Intercreditor Agreement dated June 15, 2019 between Nordbank International AG (in its capacity as first-lien agent) and BMC (in its original capacity as holder of the mezzanine notes and now in its capacity as holder of the new $60 million second-lien notes).
The A&R ICA sets forth the relative rights and priorities of the first-lien creditors and the second-lien creditors with respect to the shared collateral, including standstill periods, waterfall provisions, and consent and voting mechanics that reflect the post-RSA capital structure.
D. KFO Equity Contribution
KFO Holdings SA, the Kostandinos family holding company, contributed €35 million (approximately $38.2 million at the €1 = $1.0914 exchange rate prevailing on March 14, 2023, the date of the RSA) in new equity capital to TSL. The proceeds of the KFO equity contribution were utilized to fund the Company's ongoing liquidity needs, repay the Revolver overdraw in excess of the reduced $150 million commitment, pay the missed unsecured note coupon, and pay transaction costs associated with the RSA Transactions.
The KFO equity contribution was documented through the Equity Subscription Agreement dated May 22, 2023, entered into between TSL and KFO. As noted in Section III.B above, the Kostandinos family's pre-RSA equity ownership was 80% (Dimitrios Kostandinos at 62% and Elena Kostandinos-Pavlou at 18%), held through KFO. Following the 15% dilution to BMC, the Kostandinos family's collective post-RSA ownership is 68%.
E. Unsecured Notes
The Company's $50 million 8.25% Senior Unsecured Notes due March 1, 2025 (CUSIP 87265BAB5), for which Garrison Trust Company serves as indenture trustee, remain unimpaired under the RSA. The missed semi-annual interest payment of $2,062,500 originally due on December 1, 2022 was paid in full on the Closing Date in accordance with the Funds Flow Memorandum.
The Event of Default arising from the missed coupon payment was waived pursuant to the Consent and Waiver Letter from Garrison Trust Company dated March 20, 2023 (the "Consent and Waiver Letter"), which was countersigned by Ashford, Brightmoor Group & McKay PC, counsel to the indenture trustee. Following payment of the missed coupon and the effectiveness of the waiver, no Event of Default exists under the Senior Unsecured Notes Indenture.
F. Intercompany Note Amendment
The existing intercompany promissory note from TAI to TSL was amended and restated pursuant to the Amended and Restated Intercompany Promissory Note dated May 25, 2023 (the "A&R Intercompany Note"). The A&R Intercompany Note provides for a $76.4 million subordinated obligation from TAI to TSL, with the maturity date extended from the original maturity to December 2028. The interest rate on the intercompany note was reduced from 5.0% per annum to 2.0% per annum, and the subordination of the intercompany note to all senior and second-lien indebtedness of the Company Parties was confirmed.
G. Vessel Disposition Undertaking
Pursuant to the Side Letter Agreement dated March 14, 2023 (the "Side Letter"), executed concurrently with the RSA, TSL undertook to sell six older dry-bulk carriers (with an average vessel age of approximately 18 years) within 12 months of the date of the RSA (i.e., by March 14, 2024), for estimated aggregate gross proceeds of approximately $72 million. The net proceeds from such vessel dispositions are required to be applied as mandatory prepayments of the TLA. The Side Letter was entered into between TSL and Nordbank (in its capacity as Administrative Agent for the Consenting Lenders).
H. Trade Creditors
Trade payables of the Company Parties, aggregating approximately $38.7 million as of the Closing Date, are to be paid in full in the ordinary course of business and are not impaired under the RSA. The largest individual trade creditor is Olympian Fuel & Supply SA, which is owed approximately $9.2 million for bunker fuel and related supplies. No trade creditor was required to execute any consent, waiver, or forbearance agreement in connection with the RSA Transactions.
IV. CONDITIONS PRECEDENT — SATISFACTION OR WAIVER
Section 5 of the RSA set forth certain conditions precedent to the obligation of each RSA Party to consummate the RSA Transactions on the Closing Date. This Section IV confirms the satisfaction of each such condition precedent.
A. Documentary Conditions
Each of the following transaction documents was required to be duly executed and delivered by the applicable parties as a condition to closing. Each such condition has been confirmed as satisfied:
1. Amendment No. 1 to Senior Secured Credit Agreement (dated May 15, 2023). Executed and delivered by TSL (as Borrower), TAI (as Co-Borrower), Nordbank International AG (as Administrative Agent and Collateral Agent), and all nine members of the Senior Secured Lender syndicate. Original executed counterparts have been received and are maintained in the closing binder. Confirmed satisfied.
2. Amended and Restated Intercreditor Agreement (dated May 15, 2023). Executed and delivered by Nordbank International AG (as first-lien agent) and BMC (as second-lien creditor). Original executed counterparts have been received. Confirmed satisfied.
3. New Second-Lien Note Purchase Agreement (dated May 18, 2023). Executed and delivered by TSL (as issuer) and BMC (as purchaser). Original executed counterparts have been received. Confirmed satisfied.
4. New Second-Lien Notes Indenture (dated May 18, 2023). Executed and delivered by TSL (as issuer) and Garrison Trust Company (as indenture trustee; 100 Wall Street, 16th Floor, New York, New York 10005). Original executed counterparts have been received. Confirmed satisfied.
5. Equity Subscription Agreement — KFO Holdings SA (dated May 22, 2023). Executed and delivered by TSL and KFO. Original executed counterparts have been received. Confirmed satisfied.
6. Amended and Restated Intercompany Promissory Note (dated May 25, 2023). Executed and delivered by TAI (as obligor) and TSL (as obligee). Original executed counterparts have been received. Confirmed satisfied.
7. Joinder Agreement — Consenting Lenders (dated March 14, 2023). Executed by all nine members of the Senior Secured Lender syndicate, with each lender's respective outstanding principal balance under the Senior Secured Credit Agreement as follows:
Note: The above table reflects original commitment amounts. Outstanding principal as of September 30, 2022 was approximately $540 million in the aggregate, as described in Section III.A.
All nine lenders have acceded to the RSA and consented to the Amendment. Confirmed satisfied.
8. Lock-Up Agreement — Dralvecen Mezzanine Capital LLC (dated March 14, 2023). Executed and delivered by TSL and BMC. The Lock-Up Agreement was executed on behalf of BMC by Rebecca Marsh, Senior Partner. Confirmed satisfied.
9. Consent and Waiver Letter — Garrison Trust Company (dated March 20, 2023). Executed and delivered by Garrison Trust Company (as indenture trustee for the Senior Unsecured Notes), countersigned by Ashford, Brightmoor Group & McKay PC (counsel to the indenture trustee). The Consent and Waiver Letter waives the Event of Default under the Senior Unsecured Notes Indenture arising from the missed December 1, 2022 coupon payment, effective upon payment in full of the missed coupon on the Closing Date. Confirmed satisfied.
10. Side Letter Agreement: Vessel Disposition Undertaking (dated March 14, 2023). Executed and delivered by TSL and Nordbank (as Administrative Agent for the Consenting Lenders). Confirmed satisfied.
B. Certificates Delivered at Closing
Each of the following certificates was required to be delivered at or prior to closing as a condition to the consummation of the RSA Transactions. Each such condition has been confirmed as satisfied:
1. Secretary's Certificate — Thalassa Americas Inc. (dated June 30, 2023). The Secretary's Certificate certifies the following with respect to TAI: (a) a true and correct copy of TAI's certificate of incorporation, as currently in effect; (b) a true and correct copy of TAI's bylaws, as currently in effect; (c) true and correct copies of the resolutions of the board of directors of TAI authorizing TAI's execution, delivery, and performance of each of the transaction documents to which TAI is a party, and the consummation of the RSA Transactions; and (d) an incumbency certificate setting forth the names, titles, and specimen signatures of the officers of TAI authorized to execute the transaction documents on behalf of TAI, specifically Marcus Hale (President) and Diana Restrepo (Vice President, Finance). Confirmed delivered.
2. Officer's Certificate — Marcus Hale (dated June 30, 2023). Marcus Hale, President of TAI, delivered an officer's certificate certifying that: (a) all representations and warranties of TAI contained in the RSA and the transaction documents are true and correct in all material respects as of the Closing Date (both before and after giving effect to the RSA Transactions); (b) no Default or Event of Default exists under any of the transaction documents after giving effect to the RSA Transactions; and (c) all conditions precedent to the obligations of TAI under the RSA and the transaction documents have been satisfied or waived. Confirmed delivered.
3. Solvency Certificate — Diana Restrepo (dated June 30, 2023). Diana Restrepo, Vice President of Finance of TAI, delivered a solvency certificate certifying that, after giving effect to the RSA Transactions and all transactions contemplated thereby:
(i) the fair value of the assets of TAI exceeds the total amount of its liabilities (including contingent liabilities);
(ii) TAI is able to pay its debts and other liabilities, including contingent obligations, as they become due in the ordinary course of business; and
(iii) TAI has adequate capital to carry on its business and all businesses in which it is about to engage.
Confirmed delivered.
C. Legal Opinions Delivered at Closing
The following legal opinions were required to be delivered at or prior to closing:
1. Calderwood & Harkness LLP Legal Opinion: Due Authorization and Enforceability (TAI) (dated June 30, 2023). Addressed to Nordbank International AG (in its capacities as Administrative Agent and Collateral Agent) and each of the Consenting Lenders. This opinion confirms that: (a) TAI is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware; (b) TAI has the corporate power and authority to execute, deliver, and perform its obligations under Amendment No. 1 to the Senior Secured Credit Agreement and the ancillary transaction documents to which it is a party; (c) the execution, delivery, and performance of such documents have been duly authorized by all necessary corporate action on the part of TAI; and (d) such documents constitute the legal, valid, and binding obligations of TAI, enforceable against TAI in accordance with their respective terms, subject to customary bankruptcy, insolvency, and equitable remedies exceptions. Confirmed delivered.
2. Calderwood & Harkness LLP Legal Opinion: No Conflicts / No Violations (TAI) (dated June 30, 2023). Addressed to Nordbank International AG (as Administrative Agent). This opinion confirms that the execution, delivery, and performance by TAI of the transaction documents to which it is a party, and the consummation of the RSA Transactions by TAI: (a) do not and will not violate, conflict with, or result in a breach of any provision of TAI's certificate of incorporation or bylaws; (b) do not and will not result in a breach or default under any material agreement, indenture, mortgage, deed of trust, or other instrument to which TAI is a party or by which TAI or any of its properties is bound; and (c) do not and will not result in a violation of any applicable law, statute, rule, regulation, order, judgment, or decree of any governmental authority having jurisdiction over TAI. Confirmed delivered.
3. Vassiliou & Demetriou Law Offices — Greek Law Opinion (dated June 30, 2023). Delivered by Alexandros Vassiliou, senior partner of Vassiliou & Demetriou Law Offices, Athens, Greece. This opinion confirms that: (a) TSL is duly organized and validly existing as a société anonyme under the laws of the Hellenic Republic; (b) TSL has the corporate power and authority under Greek law to execute, deliver, and perform the transaction documents to which it is a party; (c) the execution, delivery, and performance by TSL of such transaction documents have been duly authorized by all necessary corporate action under Greek law; and (d) the RSA Transactions do not trigger any obligations or requirements under Greek Law 4738/2020 (Regulation of Matters Regarding the Management of Insolvency and Debt Relief), including without limitation any obligation to initiate pre-insolvency proceedings or file for debt restructuring under such law. Confirmed delivered.
D. Financial / Funding Conditions
Each of the following financial conditions was required to be satisfied at or prior to closing:
1. KFO Equity Contribution. KFO Holdings SA was required to contribute €35 million (approximately $38.2 million at the applicable exchange rate) in new equity capital to TSL. The KFO equity contribution was received by TSL via wire transfer in accordance with the Funds Flow Memorandum. Wire confirmation has been received and is on file. Confirmed satisfied.
2. Payment of Missed Unsecured Note Coupon. Payment of $2,062,500 to Garrison Trust Company (100 Wall Street, 16th Floor, New York, New York 10005) for distribution to the holders of the Senior Unsecured Notes, representing the missed semi-annual interest payment originally due December 1, 2022. Wire confirmation has been received and is on file. Confirmed satisfied.
3. Amendment Fee. The amendment fee in the amount of $5,400,000 (calculated as 1.00% of the $540 million in aggregate outstanding principal under the Senior Secured Credit Agreement) was payable in kind. This amount has been capitalized and added to the outstanding principal balance of the Senior Secured Credit Facility by book entry. No cash movement was required or made. Confirmed satisfied (book entry).
4. Transaction Cost Payments. All professional fees and transaction costs were paid from closing proceeds in accordance with the Funds Flow Memorandum, including:
(a) Calderwood & Harkness LLP — legal fees and disbursements (as further described in Section VIII below);
(b) Kensington Veltrian Partners LLC — completion fee of $4,500,000 (payable to 300 Park Avenue, 12th Floor, New York, New York 10022); and
(c) All other advisor fees as set forth in the Funds Flow Memorandum.
Wire confirmations for each payment have been received and are on file. Confirmed satisfied.
5. Collateral Confirmation. Nordbank International AG, in its capacity as Collateral Agent, confirmed the continuation and perfection of first-priority security interests and liens on the following collateral:
(a) 38 dry-bulk carriers owned by TSL and its vessel-owning subsidiaries;
(b) 12 container vessels owned by TSL and its vessel-owning subsidiaries;
(c) the Houston terminal lease held by TAI;
(d) all accounts receivable of TSL and TAI;
(e) all equity interests in TAI; and
(f) all equity interests in the 14 vessel-owning special purpose vehicles organized as subsidiaries of TSL.
BMC confirmed the existence and perfection of its second-priority lien on the same collateral, subordinate to Nordbank's first-priority liens, in accordance with the A&R ICA. Confirmed satisfied.
E. Regulatory and Other Conditions
The following regulatory and other conditions were confirmed in connection with closing:
• Greek Regulatory Approvals. Vassiliou & Demetriou Law Offices confirmed that no Greek regulatory filings or approvals were required to consummate the RSA Transactions, including under Greek corporate law, banking regulations, or competition law.
• SEC Filings. No filings with the United States Securities and Exchange Commission were required, as TSL is a privately held company and the Senior Unsecured Notes were privately placed under an exemption from registration under the Securities Act of 1933, as amended.
• Antitrust Filings. No filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or with the Federal Trade Commission were triggered by the RSA Transactions. The equity issuances do not involve an acquisition of voting securities above the applicable thresholds.
• Independent Auditor Confirmation. Grainger, Holt & Associates LLP (Malcolm Holt, Lead Engagement Partner) confirmed that the firm's audit engagement for the Company's fiscal year 2023 financial statements is unaffected by the restructuring transactions, and that the restructuring does not trigger any auditor independence concerns.
• Insurance Confirmation. Seaward & Beckett Insurance Brokers Ltd. (Ian Beckett, Principal) confirmed that all insurance policies maintained by the Company Parties, including the directors' and officers' liability insurance policy issued by Promontory Indemnity Insurance Co. (Policy No. PII-DO-2022-08847; $25 million aggregate limit), remain in full force and effect and are not impaired by or subject to cancellation as a result of the RSA Transactions.
F. Conditions Waived
No conditions precedent to closing under the RSA were waived by any RSA Party. All conditions precedent were satisfied in full as described above.
V. FUNDS FLOW SUMMARY
Reference is hereby made to the detailed Funds Flow Memorandum dated June 29, 2023 (attached as Appendix B to this memorandum), prepared by Amy Chesterton, Lead Associate, and approved by Nathaniel Bower, Responsible Partner. The Funds Flow Memorandum sets forth the precise wire transfer instructions, amounts, and sequencing for all cash movements required to consummate the RSA Transactions.
The key fund movements on the Closing Date are summarized as follows:
Total C&H engagement billing through the Closing Date is $3,989,930, comprising $3,847,250 in professional fees and $142,680 in disbursements, net of the $500,000 retainer previously deposited on October 28, 2022. The final C&H invoice was paid from closing proceeds as reflected in the Funds Flow Memorandum.
All wire transfers were initiated and sent on June 30, 2023. Confirmations of receipt for all outgoing wires have been received and are maintained in the closing files. Copies of all wire transfer confirmations are compiled in Appendix D to this memorandum.
VI. EXECUTED DOCUMENT LIST
Set forth below is a complete list of all documents executed and/or delivered at or in connection with the closing of the RSA Transactions, organized by category. Original executed counterparts and/or conformed copies of each document are maintained in the closing binder and in the electronic matter files for Matter No. 1044-00003.
A. RSA and Support Agreements
1. Restructuring Support Agreement — Execution Version (March 14, 2023)
2. Joinder Agreement — Consenting Lenders (March 14, 2023)
3. Lock-Up Agreement — Dralvecen Mezzanine Capital LLC (March 14, 2023)
4. Side Letter Agreement: Vessel Disposition Undertaking (March 14, 2023)
B. Senior Secured Credit Facility Amendments
5. Amendment No. 1 to Senior Secured Credit Agreement (May 15, 2023)
C. Intercreditor Agreement
6. Amended and Restated Intercreditor Agreement (May 15, 2023)
D. Second-Lien Notes
7. New Second-Lien Note Purchase Agreement (May 18, 2023)
8. New Second-Lien Notes Indenture (May 18, 2023)
E. Equity
9. Equity Subscription Agreement — KFO Holdings SA (May 22, 2023)
F. Intercompany
10. Amended and Restated Intercompany Promissory Note — TAI to TSL (May 25, 2023)
G. Consents and Waivers
11. Consent and Waiver Letter — Garrison Trust Company (March 20, 2023)
H. Certificates
12. Secretary's Certificate — Thalassa Americas Inc. (June 30, 2023)
13. Officer's Certificate — Marcus Hale, President of TAI (June 30, 2023)
14. Solvency Certificate — Diana Restrepo, Vice President of Finance of TAI (June 30, 2023)
I. Legal Opinions
15. Calderwood & Harkness LLP Legal Opinion: Due Authorization and Enforceability (TAI) (June 30, 2023)
16. Calderwood & Harkness LLP Legal Opinion: No Conflicts / No Violations (TAI) (June 30, 2023)
17. Vassiliou & Demetriou Law Offices — Greek Law Opinion (June 30, 2023)
J. Financial
18. Funds Flow Memorandum (June 29, 2023)
VII. POST-CLOSING MATTERS AND OUTSTANDING ITEMS
The following post-closing matters and outstanding administrative items have been identified and require attention following the Closing Date. Each item is assigned to the responsible attorney for tracking purposes.
A. Vessel Dispositions
Pursuant to the Side Letter Agreement dated March 14, 2023, TSL is obligated to sell six older dry-bulk carriers (with an average vessel age of approximately 18 years) within 12 months of the date of the RSA (i.e., by March 14, 2024), for estimated aggregate gross proceeds of approximately $72 million. The net proceeds from such sales are required to be applied as mandatory prepayments of the TLA. The Company has engaged Larkspur Partners LLC (shipbroker) to market the vessels, and C&H should monitor the progress of the sale process on a periodic basis. Any extension or modification of the vessel disposition timeline will require the consent of Nordbank (as Administrative Agent) and the Required Lenders under the Senior Secured Credit Agreement.
B. Financial Covenant Compliance
The financial covenant resets under Amendment No. 1 take effect as of the Closing Date. The post-RSA covenant levels are as described in Section III.A(d) above. We recommend that C&H monitor the Company's compliance with the reset covenants, with particular attention to the following:
• The Minimum Interest Coverage Ratio has been waived through the testing period ending December 31, 2023 (Q4 2023). The first testing date for the reinstated Minimum Interest Coverage Ratio will be the quarter ending March 31, 2024 (Q1 2024), at which time the Company will be required to maintain a ratio of at least 1.75x. Given the Company's current earnings trajectory and the reduction in cash debt service achieved through the PIK conversion, compliance at this level should be achievable, but the matter warrants monitoring.
• The Maximum Net Leverage Ratio of 7.00x should be tested against the Company's quarterly financial statements as they become available.
• The Minimum Liquidity Covenant of $30 million (tested monthly) should be tracked against the Company's monthly cash position reports.
C. Standby Engagements — Termination
In connection with the Chapter 11 contingency planning track, the Company Parties entered into two standby engagements that were not activated and should now be formally terminated:
1. Pendleton Claim Services Inc. (Laura Pendleton, President; 1601 Elm Street, Suite 4200, Dallas, Texas 75201). The Company entered into a standby engagement letter with Pendleton Claim Services Inc. on November 15, 2022, pursuant to which Pendleton was retained to serve as claims and noticing agent in the event of a Chapter 11 filing by TAI. The filing did not occur, and the engagement was never activated. A formal termination letter should be prepared and sent to Laura Pendleton confirming the termination of the standby engagement and that no fees are owed. Assigned to: Nathan Ikeda.
2. Alderney Management Advisors LLC (Richard "Rick" Thornberg, CRO Designee; 200 Clarendon Street, 45th Floor, Boston, Massachusetts 02116). The Company entered into a standby engagement with Alderney Management Advisors LLC, pursuant to which Rick Thornberg was designated as the Chief Restructuring Officer to be installed at TAI in the event of a Chapter 11 filing. The CRO engagement was not activated. C&H should confirm that no fees are outstanding to Alderney and should prepare and send a formal release letter. Assigned to: Nathan Ikeda.
D. DIP Financing
The DIP Term Sheet received on December 15, 2022 from Nordbank International AG and Triton Credit Partners LP, providing for a proposed $75 million superpriority debtor-in-possession credit facility, was never executed. A draft DIP Credit Agreement dated December 22, 2022 was prepared but also never executed. The DIP financing was overtaken by the successful out-of-court restructuring, and no further action is required with respect to these documents. The draft materials should be retained in the matter file for reference purposes.
E. Chapter 11 Contingency Materials
All draft Chapter 11 pleadings prepared by C&H on a standby basis, including the draft voluntary petition for TAI, draft first-day motions (cash management, critical vendors, utilities, wages and benefits), draft DIP financing motions, and draft retention applications, were never filed with the Bankruptcy Court. These materials should be preserved in the matter file in accordance with the firm's document retention policies. No further action is required. Assigned to: Nathan Ikeda (file organization).
F. Insurance
C&H should confirm with Seaward & Beckett Insurance Brokers Ltd. (Ian Beckett, Principal) that all insurance policies maintained by the Company Parties, including specifically the directors' and officers' liability insurance policy issued by Promontory Indemnity Insurance Co. (Policy No. PII-DO-2022-08847; $25 million aggregate limit), have been updated to reflect the restructured capital structure, the new equity ownership percentages, and any changes to the board composition or officer roster that may have occurred in connection with the RSA Transactions. Assigned to: Amy Chesterton.
G. Auditor Notification
Grainger, Holt & Associates LLP (Malcolm Holt, Lead Engagement Partner) should be formally notified that the RSA Transactions have closed as of June 30, 2023, for purposes of the audit treatment of the restructuring transactions in the Company's fiscal year 2023 financial statements. Sylvia Hartwell (Specialist Partner, Tax) should be consulted regarding any tax reporting implications of the debt-for-equity exchange, the PIK conversion, and the forgiveness of approximately $52.3 million in mezzanine debt principal. Assigned to: Amy Chesterton (auditor notification); Sylvia Hartwell (tax implications).