CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED — ATTORNEY WORK PRODUCT
DEBTOR-IN-POSSESSION CREDIT FACILITY
SUMMARY OF TERMS AND CONDITIONS
Annotated with Comments of Calderwood & Harkness LLP
Original Term Sheet Date: December 15, 2022
Annotations Date: December 18, 2022
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED — ATTORNEY WORK PRODUCT
C&H Matter Number: 1044-00003
Client: Thalassa Shipping & Logistics SA ("TSL") / Thalassa Americas Inc. ("TAI")
Prepared by:
Amy Chesterton, Lead Associate
Nathan Ikeda, Working Associate
Reviewed by:
Nathaniel Bower, Responsible Partner
Note Regarding Format and Conventions
This document reproduces the text of the Summary of Terms and Conditions for the proposed Debtor-in-Possession Credit Facility dated December 15, 2022, as circulated by counsel to Nordbank International AG and Triton Credit Partners LP (collectively, the "DIP Lenders"). The original term sheet text from Nordbank International AG and Triton Credit Partners LP appears in standard type. Calderwood & Harkness LLP annotations, observations, negotiating points, and recommendations appear in bracketed bold/italic comment blocks immediately following the relevant section of the term sheet. All C&H annotations are protected by the attorney-client privilege and the attorney work product doctrine and are prepared solely for the benefit of Thalassa Americas Inc. and Thalassa Shipping & Logistics SA. This document should not be shared with any third party, including DIP Lenders or their counsel, without the express authorization of Nathaniel Bower.
References to dollar amounts are to United States Dollars unless otherwise specified. Capitalized terms not defined herein have the meanings ascribed to them in the prepetition Senior Secured Credit Agreement dated June 15, 2019, among Thalassa Americas Inc., as borrower, Thalassa Shipping & Logistics SA and certain of its subsidiaries, as guarantors, Nordbank International AG, as administrative agent and collateral agent, and the lenders party thereto from time to time (the "Prepetition Credit Agreement").
Right-click to update Table of Contents
1. PARTIES
1.1 Borrower
Thalassa Americas Inc. ("TAI" or the "Borrower"), a corporation organized and existing under the laws of the State of Delaware.
EIN: 84-3291057
Principal Office: 1400 McKinney Street, Suite 2200, Houston, TX 77010
Registered Agent: Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, DE 19801
TAI is a wholly-owned subsidiary of Thalassa Shipping & Logistics SA, a société anonyme organized under the laws of the Hellenic Republic, with its registered office in Piraeus, Greece. TAI serves as the principal U.S. operating entity for the Thalassa group, managing the Houston terminal operations, domestic freight brokerage, and U.S.-side commercial activities for the group's fleet of dry-bulk carriers and container vessels.
> *[C&H COMMENT: Confirm that TAI is the sole borrower under the DIP facility. TSL (the Greek parent) should not be a co-borrower on the DIP to avoid subjecting Greek-domiciled assets to U.S. Bankruptcy Court jurisdiction beyond what is necessary. Structuring TAI as the sole DIP borrower is consistent with the Chapter 11 filing strategy: only TAI will be a debtor in the U.S. case, while TSL and the vessel-owning SPVs remain non-debtor foreign entities. If TSL were to become a co-borrower or guarantor of the DIP, the U.S. Bankruptcy Court could assert broader jurisdiction over TSL's assets (including the fleet), which could complicate the cross-border coordination framework and potentially trigger involuntary recognition proceedings under Chapter 15. Discuss with Vassiliou & Demetriou (Alexandros Vassiliou, lead partner) regarding Greek law implications of any TSL guarantee of DIP obligations, including whether such a guarantee would constitute a "collective proceeding" trigger under Greek Law 4738/2020 or affect the COMI determination for Chapter 15 purposes. See also Section 1.2 below regarding guarantor issues.] — C&H]*
1.2 Guarantors
The term sheet does not specify any guarantors of the DIP facility. However, the DIP Lenders reserve the right to request guarantees from one or more of the vessel-owning special purpose vehicles ("SPVs") controlled by TSL, at any time during the term of the DIP facility, subject to Bankruptcy Court approval.
> *[C&H COMMENT: We should resist any requirement for TSL or its fourteen (14) vessel-owning SPVs to guarantee the DIP facility. The vessel-owning SPVs — each organized under the laws of the Republic of the marshall Islands or the Republic of Liberia — are the registered owners of the fleet and the entities through which the prepetition ship mortgages are granted. If SPV guarantees are required by the DIP Lenders, we must ensure full coordination with Greek counsel (Vassiliou & Demetriou, Athens office) and conduct a thorough analysis of whether such guarantees would (a) trigger foreign insolvency proceedings in Greece, the marshall Islands, or Liberia; (b) constitute an "act of insolvency" under the governing law of any SPV; (c) affect the COMI determination for Chapter 15 purposes, which currently places TSL's COMI in Greece (based on the registered office, location of senior management, board meetings held in Piraeus, and the Greek-law employment contracts of C-suite executives); or (d) create potential claw-back exposure under Greek avoidance provisions (Articles 116–121 of Law 4738/2020). Cross-reference to the Memorandum: COMI and Chapter 15 Recognition Issues (Nov. 8, 2022), which concludes that TSL's COMI is in Greece and that a Chapter 15 proceeding in the U.S. would seek recognition of any Greek main proceeding. The "reserved right" to request SPV guarantees should be deleted from the term sheet, or at minimum narrowed so that any such request requires Borrower consent and is subject to the Borrower's ability to demonstrate that SPV guarantees would not trigger adverse foreign insolvency consequences.] — C&H]*
1.3 DIP Agent
Nordbank International AG ("Nordbank" or the "DIP Agent"), a bank organized under the laws of the Swiss Confederation, acting through its Shipping & Offshore Finance division.
Address: Bahnhofstrasse 78, 8001 Zürich, Switzerland
Primary Contact: Henrik Lüdemann, Managing Director, Shipping & Offshore Finance
Role: Administrative Agent and Collateral Agent under the DIP facility
Nordbank shall serve as both the administrative agent (responsible for loan administration, disbursements, and communications with the Borrower) and the collateral agent (responsible for perfection and enforcement of DIP liens) under the DIP facility.
> *[C&H COMMENT: Nordbank is also the Administrative Agent and Collateral Agent under the prepetition $685 million Senior Secured Credit Facility (dated June 15, 2019; the "Prepetition Credit Agreement"). This dual role — serving as agent under both the prepetition facility and the DIP facility — is standard in DIP financing structures but must be disclosed in the DIP Motion filed with the Bankruptcy Court and addressed in terms of potential conflicts of interest. Specifically, Nordbank holds $137 million of the prepetition facility — making it the single largest lender in the prepetition syndicate — and it is simultaneously committing $45 million (60%) of the DIP facility. The Court and parties in interest (including any unsecured creditors' committee, the U.S. Trustee, and non-consenting prepetition lenders) may question whether Nordbank's interests as a prepetition lender conflict with its duties as DIP Agent.*
Confirm that Nordbank's counsel, Whitfield, Crane & Burgess LLP (Graham Whitfield III, lead partner), is aware of and consents to the dual-agent structure. WCB should also confirm whether it will serve as counsel to Nordbank in its capacity as DIP Agent, in addition to its existing engagement as counsel to the Ad Hoc Group of Senior Secured Lenders — the potential for role conflicts should be addressed in writing and disclosed to the Court. If WCB cannot serve in both capacities due to conflicts, Nordbank may need to retain separate DIP Agent counsel, which would add to administrative costs but would resolve any ethical issues.] *— C&H]*
1.4 DIP Lenders
The DIP facility commitments are allocated as follows:
Nordbank International AG — Commitment of $45,000,000 (60% of the facility). Contact and address as set forth in Section 1.3 above.
Triton Credit Partners LP ("Triton"), a Delaware limited partnership.
Address: 399 Park Avenue, 14th Floor, New York, NY 10022
Primary Contact: David Sorokin, Partner
> *[C&H COMMENT: Both DIP Lenders are members of the Ad Hoc Group of Senior Secured Lenders (the "Ad Hoc Group"), which holds approximately $372 million, or 54.3%, of the $685 million outstanding under the Prepetition Credit Agreement. Within the Ad Hoc Group, Nordbank holds $137 million and Triton holds $68 million of prepetition exposure. As noted above, the DIP Lenders are also among the largest prepetition secured creditors.*
The Bankruptcy Court will closely scrutinize whether prepetition lenders providing DIP financing are extracting undue advantage or using the DIP facility to advance their prepetition recovery at the expense of other stakeholders. This scrutiny is heightened here because: (a) the DIP Lenders collectively hold over $205 million (approximately 30%) of the prepetition secured debt; (b) the Ad Hoc Group as a whole holds majority position; (c) the DIP facility includes priming liens on TAI assets; and (d) the milestones and covenants could be viewed as effectively ceding control of the restructuring timeline to the DIP Lenders. We must ensure that the adequate protection package and DIP terms pass muster under §364(c) and (d) of the Bankruptcy Code and that the DIP Motion demonstrates that the terms are the best available to the Debtor — ideally by documenting that alternative DIP financing was explored and was either unavailable or on materially worse terms.
Confirm that counsel to the Ad Hoc Group (Whitfield, Crane & Burgess LLP, Graham Whitfield III) has signed off on the term sheet and that the Ad Hoc Group's steering committee has formally authorized Nordbank and Triton to proceed with the DIP commitment on behalf of the group. Also confirm whether other Ad Hoc Group members — specifically Harborstone Bank plc (contact: Fiona Aldrich, Head of Shipping Finance, London) and Continental Maritime Lending GmbH (contact: Klaus Rheinfeld, Director, Hamburg) — were offered participation in the DIP facility and declined. If they declined, document the reasons, as this will be helpful in demonstrating to the Court that the Debtor conducted a reasonable market check for DIP financing. If they were not offered participation, we should consider whether a broader solicitation (even if informal) would strengthen the record.] *— C&H]*
2. DIP FACILITY — SUMMARY TERMS
2.1 Type of Facility
The DIP facility shall be structured as a superpriority senior secured debtor-in-possession revolving credit facility pursuant to Sections 364(c) and 364(d) of Title 11 of the United States Code (the "Bankruptcy Code").
The revolving credit structure permits the Borrower to borrow, repay, and re-borrow amounts under the facility during the commitment period, up to the aggregate commitment amount, subject to the terms and conditions set forth herein and in the definitive DIP Credit Agreement.
> *[C&H COMMENT: The revolving structure provides significantly more flexibility than a term loan, as it allows TAI to draw down funds as needed and to manage cash flow on a dynamic basis. However, confirm whether the Borrower can in fact re-borrow repaid amounts during the term, or whether there is a "creeping term loan" mechanism embedded in the definitive documentation — i.e., mandatory prepayments (from asset sale proceeds, excess cash flow, insurance proceeds, etc.) that permanently reduce the aggregate commitment, effectively converting the revolver into a term loan over time. We have seen this structure in several recent shipping DIP facilities (e.g., the GenStar Maritime DIP in 2021, the Pacific Bulk DIP in 2020), and it can significantly constrain the Debtor's liquidity if operational cash flows are swept into mandatory prepayments rather than being available for re-borrowing.*
In the definitive documentation, ensure that (a) the revolving nature of the facility is preserved and that repaid amounts are available for re-borrowing without condition; (b) any mandatory prepayment provisions are narrowly drawn and do not apply to ordinary-course collections or operating cash flow; and (c) the aggregate commitment is not subject to reduction except upon maturity, termination, or acceleration.] *— C&H]*
2.2 Aggregate Commitment
The aggregate commitment under the DIP facility shall be $75,000,000 (Seventy-Five Million Dollars).
> *[C&H COMMENT: The adequacy of the $75 million aggregate commitment must be validated against the 13-week cash flow model prepared by Kensington Veltrian Partners LLC ("KHP"; James Calloway, Managing Director, as lead advisor). KHP should provide a written confirmation that $75 million is sufficient to fund TAI's operations through an estimated 12-month Chapter 11 case. The adequacy analysis should account for, at minimum, the following projected cash needs:*
(1) Professional fees: Estimated at approximately $18.5 million for the first 12 months across all estate professionals (Calderwood & Harkness LLP, KHP, Alderney Management Advisors LLC / CRO, any committee professionals, and other advisors);
(2) Adequate protection payments to prepetition senior secured lenders: Approximately $20.25 million per annum in current-pay cash interest at SOFR + 375 bps on $540 million outstanding (see Section 5.1 comments);
(3) Vessel operating costs allocable to TAI (fuel, crew, port charges, maintenance);
(4) Houston terminal operations (labor, maintenance, port authority fees, utilities);
(5) Employee wages and benefits for approximately 680 U.S. employees;
(6) Insurance premiums (hull & machinery, P&I, D&O, general liability);
(7) DIP interest and fees; and
(8) Capital expenditures and reserves.
Total estimated administrative costs for the first 12 months are approximately $18.5 million for professionals alone. Combined with adequate protection payments, ongoing operations, and DIP debt service, the total cash requirement could approach or exceed $75 million. KHP should stress-test the cash flow model under downside scenarios (e.g., 15% decline in charter rates, loss of a major customer, unexpected vessel repairs) to confirm that $75 million provides adequate cushion. If the stress test reveals a potential shortfall, we should negotiate an accordion feature or an incremental commitment option to increase the facility size by up to $15–25 million upon request.] *— C&H]*
2.3 Interim Borrowing Limit
Upon entry of the Interim DIP Order by the Bankruptcy Court, the Borrower shall be authorized to borrow up to $30,000,000 (Thirty Million Dollars) under the DIP facility (the "Interim Borrowing Limit").
The remaining $45,000,000 (Forty-Five Million Dollars) shall become available for borrowing upon entry of the Final DIP Order by the Bankruptcy Court.
> *[C&H COMMENT: The $30 million interim draw should be sufficient to cover TAI's liquidity needs for the first 30–45 days of the Chapter 11 case. This period encompasses the first-day operations, payment of employee wages and benefits (typically authorized by first-day order), critical vendor payments, insurance premium installments, and ongoing vessel and terminal operations pending entry of the Final DIP Order.*
Verify against KHP's 13-week cash flow that initial liquidity needs are fully covered by the $30 million interim amount. In particular, confirm that the following first-day and near-term obligations can be satisfied within the $30 million envelope:
(a) Employee wage claims (approximately $4.2 million in the first month, based on TAI's approximately 680 U.S.-based employees);
(b) Critical vendor payments (to be identified in the Critical Vendor Motion — preliminary estimates suggest $6–8 million in the first 30 days);
(c) Insurance premiums — the annual D&O policy with Promontory Indemnity Insurance Co. (Policy No. PII-DO-2022-08847) has a quarterly premium installment of approximately $1.8 million due in January 2023, and the hull & machinery and P&I policies have premium installments due in February 2023;
(d) Ongoing vessel operating costs allocable to TAI;
(e) Houston terminal operating costs, including payroll, utilities, and port authority lease payments; and
(f) Professional retainers (C&H retainer of $500,000 was paid prepetition; KHP retainer of $250,000 is current; Alderney Management Advisors retainer TBD).
Note that TAI's unrestricted cash balance was only $27.3 million as of September 15, 2022, when the Minimum Liquidity Covenant under the Prepetition Credit Agreement was breached (the covenant required $40 million minimum liquidity, resulting in a $12.7 million shortfall that triggered the forbearance negotiations). Cash position has likely further deteriorated in the intervening three months — the most recent informal estimate from Diana Restrepo (VP Finance, TAI) is approximately $14–18 million in unrestricted cash as of mid-December 2022. Any existing cash, combined with the $30 million interim DIP draw, should provide total initial liquidity of approximately $44–48 million, which should be adequate for the first 30–45 days. However, the adequacy of the interim amount is dependent on the timing of first-day order approvals and the pace of disbursements. KHP should run a day-by-day cash flow for the first two weeks of the case to identify any pinch points.] *— C&H]*
2.4 Maturity Date
The DIP facility shall mature on the earliest of:
(a) twelve (12) months from the petition date (the "Scheduled Maturity Date");
(b) the effective date of a confirmed plan of reorganization;
(c) the date of conversion of the Chapter 11 case to a case under Chapter 7 of the Bankruptcy Code;
(d) the date of dismissal of the Chapter 11 case; or
(e) the date of acceleration of the DIP obligations upon an Event of Default.
> *[C&H COMMENT: The 12-month maturity aligns generally with our Chapter 11 Contingency Playbook (dated January 10, 2023), which targets a Day 300 plan effective date. However, the 12-month maturity provides only approximately 65 days of cushion beyond the Day 300 target, and complex shipping Chapter 11 cases — particularly those with cross-border elements — frequently experience delays in plan confirmation and effective date implementation.*
We should negotiate an extension option to provide additional runway in the event plan confirmation is delayed. Our proposed structure: two (2) successive ninety (90)-day extension periods, exercisable at the Borrower's option upon written notice to the DIP Agent delivered not less than thirty (30) days prior to the then-applicable maturity date, subject to the following conditions at the time of each extension: (i) no Event of Default shall have occurred and be continuing; (ii) the Borrower shall have delivered an updated 13-week cash flow forecast demonstrating adequate liquidity through the extended maturity date; and (iii) the Borrower shall be in material compliance with the milestones (as may have been extended). This would provide a maximum maturity of approximately 18 months from the petition date.
Additional structural note: the prepetition Senior Secured Credit Facility matures on June 15, 2024, which is approximately 18 months from any hypothetical December 2022/January 2023 filing date. A 12-month DIP maturity would expire approximately 6 months before the prepetition facility maturity, creating a potential structural issue if the Chapter 11 case extends beyond 12 months — the DIP would mature before the underlying prepetition debt, potentially forcing a refinancing or conversion. The extension option proposed above would align the DIP maturity more closely with the prepetition facility maturity date.] *— C&H]*
2.5 Interest Rate
Interest on outstanding borrowings under the DIP facility shall accrue at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus 600 basis points (6.00%).
Upon the occurrence and during the continuance of any Event of Default, interest shall accrue at the applicable rate plus an additional 200 basis points (2.00%) — i.e., SOFR + 800 basis points (8.00%) (the "Default Rate").
Interest shall be payable monthly in arrears, in cash, on the last business day of each calendar month.
> *[C&H COMMENT: SOFR + 600 bps is at the higher end of the range for recent shipping DIP facilities, but within market parameters given the risk profile of the Thalassa group and the current state of the dry-bulk and container shipping markets. For comparison:*
— GenStar Maritime DIP (S.D.N.Y., 2021): SOFR + 550 bps
— Pacific Bulk Holdings DIP (D. Del., 2020): SOFR + 500 bps
— Atlas Drybulk DIP (S.D. Tex., 2019): SOFR + 625 bps
— Prepetition Thalassa Senior Secured rate: SOFR + 375 bps (non-default); SOFR + 575 bps (default rate)
The 225 bps premium of the DIP rate over the prepetition non-default rate is justifiable given the additional risk and superpriority structure. However, we should attempt to negotiate the DIP rate down to SOFR + 550 bps, which would be more in line with recent precedent and would reduce the annual interest burden on approximately $75 million of DIP borrowings by approximately $375,000 per year.
More importantly, we should push back on the requirement that all interest be paid in cash on a current basis. Request a PIK (payment-in-kind) toggle option for at least the first ninety (90) days of the DIP facility, under which interest would accrue and be added to the outstanding principal balance rather than being paid in cash. This is consistent with the overall cash conservation strategy and would preserve approximately $1.1–1.5 million of liquidity during the critical first three months of the case (assuming average outstanding borrowings of approximately $50 million and current SOFR of approximately 4.30%, for an all-in rate of approximately 10.30%). After the initial 90-day period, interest would revert to cash-pay. The PIK toggle does not affect the DIP Lenders' economic return — it merely defers the timing of cash payment — and is therefore a reasonable ask.] *— C&H]*
2.6 Commitment Fee
A commitment fee of 0.50% per annum shall be payable on the daily average undrawn portion of the aggregate commitment, payable quarterly in arrears in cash.
> *[C&H COMMENT: Market-standard commitment fee. No objection. Ensure in the definitive documentation that the commitment fee accrues from the petition date (or the date of entry of the Interim DIP Order, at the latest), and not from the date of execution of the definitive DIP Credit Agreement, to avoid any ambiguity regarding the accrual start date. Also confirm that the commitment fee is calculated on the undrawn and uncancelled commitment — i.e., if the aggregate commitment is permanently reduced (whether by mandatory prepayment or otherwise), the commitment fee should not accrue on the cancelled portion.] — C&H]*
2.7 Upfront Fee / Closing Fee
An upfront fee (the "Closing Fee") equal to 1.00% of the aggregate commitment amount (i.e., $750,000) shall be payable in cash upon entry of the Final DIP Order.
> *[C&H COMMENT: The $750,000 upfront fee is within market range but adds to the already substantial administrative cost burden of the Chapter 11 case. This amount is in addition to the estimated $18.5 million in total administrative costs for the first 12 months. We should attempt to negotiate one of the following alternatives:*
(a) Reduce the upfront fee to 0.75% of the aggregate commitment ($562,500), representing a savings of $187,500;
(b) Alternatively, defer payment of the full 1.00% upfront fee to the earlier of (i) the plan effective date or (ii) acceleration of the DIP obligations, thereby preserving $750,000 of near-term liquidity; or
(c) Structure the upfront fee as 0.50% payable at final closing and 0.50% payable on the plan effective date (split payment).
Given that the DIP Lenders are also prepetition lenders who will benefit from the adequate protection package and the overall restructuring, there is a reasonable argument that the upfront fee should be moderated. This point is "Important" but not "Critical" on our negotiating priority list.] *— C&H]*
2.8 Agent Fee
An annual agent fee of $150,000 shall be payable to Nordbank International AG in its capacity as DIP Agent, payable in advance on the petition date and on each anniversary thereof.
> *[C&H COMMENT: Acceptable. Nordbank is already receiving an agency fee under the Prepetition Credit Agreement (believed to be $175,000 per annum). Confirm whether the prepetition agency fee will continue to accrue during the Chapter 11 case as an adequate protection obligation or whether it will be superseded by the DIP agency fee. If both fees are payable simultaneously, the total annual agency fee to Nordbank would be $325,000, which is on the higher end but not unreasonable given the dual-agent role. Clarify in the definitive documentation to avoid double-payment disputes.] — C&H]*
3. PRIORITY AND SECURITY
3.1 Superpriority Administrative Expense Claim
All obligations of the Borrower under the DIP facility shall constitute allowed superpriority administrative expense claims against the Borrower's estate under Section 364(c)(1) of the Bankruptcy Code, with priority over all other administrative expense claims, whether now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, administrative expense claims arising under Sections 503(b), 507(a), and 507(b) of the Bankruptcy Code.
The DIP superpriority administrative expense claim shall be subject only to the Carve-Out (as defined in Section 6 below).
> *[C&H COMMENT: Standard and expected for a DIP facility of this size and nature. The superpriority claim ensures that DIP Lenders are paid ahead of all other administrative creditors, including professional fees, post-petition trade creditors, and §507(b) adequate protection claims, subject only to the Carve-Out.*
The U.S. Trustee's office in the Southern District of Texas (Houston Division) and any official committee of unsecured creditors (if one is formed) will likely scrutinize the superpriority claim and may object unless the Carve-Out is sufficient to cover (a) estate professional fees, (b) committee professional fees, and (c) U.S. Trustee fees. See Section 6 (Carve-Out) for detailed comments on the adequacy of the Carve-Out amounts. The key risk here is that an insufficient Carve-Out could result in estate professionals being unwilling to continue representing the Debtor if an Event of Default occurs, effectively leaving the Debtor without counsel at the most critical juncture of the case.] *— C&H]*
3.2 Liens — DIP Collateral
The DIP facility shall be secured by first-priority priming liens under Section 364(d) of the Bankruptcy Code on substantially all assets of Thalassa Americas Inc. (the "DIP Collateral"), including, without limitation:
(a) All accounts receivable, including all rights to payment for goods sold, services rendered, or other obligations of third parties;
(b) All inventory, whether raw materials, work-in-process, or finished goods;
(c) The Houston terminal lease (that certain Lease Agreement dated March 1, 2017, between the Port of Houston Authority and TAI, as amended) and all leasehold improvements thereto;
(d) All equipment, fixtures, and general intangibles (including intellectual property, contract rights, permits, and licenses);
(e) All deposit accounts, securities accounts, and cash (whether held by TAI directly or in escrow or trust accounts for TAI's benefit);
(f) All equity interests held by TAI in any direct or indirect subsidiaries; and
(g) All proceeds, products, rents, and profits of any of the foregoing.
> *[C&H COMMENT: Critically, the term sheet does not extend DIP liens to the thirty-eight (38) dry-bulk carriers and twelve (12) container vessels that constitute the core of the Thalassa fleet. Those vessels are owned by TSL or its fourteen (14) vessel-owning SPVs, not by TAI. The term sheet also does not purport to encumber the equity interests in TSL's vessel-owning SPVs (which are owned by TSL, not by TAI). This is correct and consistent with our filing strategy — TAI's asset base is limited to the Houston terminal operations, U.S.-side receivables, the domestic freight brokerage business, and certain equipment and general intangibles.*
For context, the following table summarizes the existing lien structure on the Thalassa group's assets:
The DIP priming liens will prime the prepetition lenders' liens only on TAI-specific collateral; the fleet itself is not TAI collateral and will not be subject to DIP liens. This distinction is important for (a) the adequate protection analysis, (b) the §364(d) priming approval, and (c) the cross-border coordination with Greek counsel regarding the fleet.
One issue to confirm: does TAI hold any equity interests in direct or indirect subsidiaries? If TAI holds interests in any of the vessel-owning SPVs (rather than TSL holding those interests directly), the DIP lien on "equity interests held by TAI in any direct or indirect subsidiaries" could inadvertently encumber interests in vessel-owning entities. Review the TAI/TSL corporate structure chart (prepared by Irini Dalakoura, CFO of TSL) to confirm.] *— C&H]*
3.3 Priming of Prepetition Liens
The DIP liens shall prime (a) the first-priority liens of the prepetition Senior Secured Lenders (the "Prepetition First Liens") and (b) the second-priority liens of Dralvecen Mezzanine Capital LLC (the "Prepetition Second Liens"), in each case on all DIP Collateral.
As of September 30, 2022:
— Outstanding obligations under the Prepetition Credit Agreement (Senior Secured): approximately $540,000,000
— Outstanding obligations under the Mezzanine Notes (Dralvecen Mezzanine Capital LLC): approximately $112,300,000
Priming of the Prepetition First Liens and Prepetition Second Liens under Section 364(d) of the Bankruptcy Code requires either (i) the consent of the holders of the existing liens being primed, or (ii) a demonstration that the holders of such existing liens are adequately protected of the diminution in value of their interests resulting from the priming.
> *[C&H COMMENT: Nordbank (as prepetition Collateral Agent) and the Ad Hoc Group (holding $372 million / 54.3% of the prepetition Senior Secured facility) are expected to consent to priming, given that Nordbank and Triton — both Ad Hoc Group members and DIP Lenders — have a direct economic interest in the success of the DIP financing. The Ad Hoc Group's consent alone, however, does not bind the non-consenting prepetition lenders.*
Non-Ad Hoc Group lenders hold the remaining $313 million (45.7%) of the prepetition Senior Secured facility and may object to priming. These lenders include:
— Aegean Capital Bank: $110 million
— Pacifica Trade Finance: $82 million
— Laurentian Shipping Fund II: $55 million
— Caspian Asset Management: $40 million
— Pelagos Institutional Credit Fund: $26 million
Total non-Ad Hoc Group: $313 million (45.7%)
We must ensure that the adequate protection package described in Section 5 is sufficient to obtain §364(d) approval even over objection from these lenders. The standard for §364(d) priming is that "there is adequate protection of the interest of the holder of such lien" — note that the statute requires adequate protection of each lienholder's interest, not merely the aggregate. Any individual non-consenting lender can object and demand a showing of adequate protection.
Additionally, Dralvecen Mezzanine Capital LLC ("BMC") — with $112.3 million outstanding under the Mezzanine Notes — will almost certainly object to priming of its second-lien position. BMC's counsel is Kellner & Foss LLP (Theodore Kellner, lead partner), and its principal contact is Rebecca Marsh (Managing Director, BMC). BMC's $112.3 million mezzanine position is already deeply underwater: the most recent fleet appraisal by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, dated November 1, 2022) valued the fleet at $623 million, and the KHP enterprise valuation analysis places the midpoint enterprise value at $610 million. After satisfying the $540 million senior secured debt, only approximately $70 million of value remains for BMC, yielding an estimated recovery of approximately 62.3% on BMC's $112.3 million claim ($70M / $112.3M). The DIP priming further subordinates BMC's position on TAI-specific collateral, potentially reducing BMC's TAI-collateral recovery to de minimis levels.
We should prepare a comprehensive adequate protection brief for the interim and final DIP hearings, supported by (a) the KHP valuation analysis, (b) the Drakos fleet appraisal, (c) a TAI-specific asset valuation, and (d) a cash flow analysis demonstrating that the DIP funding preserves (and enhances) the value of the prepetition lenders' collateral by funding the ongoing operations that generate revenue allocable to TAI assets.] *— C&H]*
4. MILESTONES
4.1 DIP Milestones
The Borrower shall comply with the following milestones (collectively, the "DIP Milestones"), measured from the petition date:
Failure to achieve any DIP Milestone by the applicable deadline shall constitute an Event of Default under the DIP facility, unless such deadline has been extended in accordance with Section 4.2 below.
> *[C&H COMMENT: The milestones are aggressive but generally consistent with our Chapter 11 Contingency Playbook (dated January 10, 2023), with one significant exception. Our Playbook timeline is as follows:*
The key concern is the Day 90 milestone for filing the disclosure statement motion. This is very tight, particularly given the cross-border complexities inherent in the Thalassa restructuring. The disclosure statement or plan support agreement must address not only TAI's U.S. operations but also the treatment of TSL's fleet, the vessel-owning SPVs, the intercompany claims ($76.4 million subordinated intercompany note from TAI to TSL), and the parallel restructuring of TSL in Greece. Coordination with Greek counsel (Vassiliou & Demetriou, Alexandros Vassiliou) on the Greek-law aspects of any restructuring plan will require significant time — Greek insolvency proceedings under Law 4738/2020 have their own procedural requirements and timelines that may not align with an aggressive U.S. Chapter 11 schedule.
Our negotiating position should be to extend the Day 90 milestone to Day 120 and correspondingly adjust subsequent milestones by 30 days (Day 120 → Day 150 for solicitation; Day 240 → Day 270 for confirmation hearing; Day 270 → Day 300 for confirmation order). The Day 300 effective date milestone can remain unchanged, as it already includes a 30-day buffer after the original Day 270 confirmation order target.
Additionally — and critically — we must negotiate a cure period before any milestone failure constitutes an Event of Default. The current term sheet provides no cure period for milestone defaults (see Section 11.1(d)). This is unacceptable. A 30-day cure period for milestone defaults is standard in DIP facilities of this complexity and would give the Debtor time to cure any delay, seek a milestone extension, or file an emergency motion with the Court. Without a cure period, a single missed milestone — even by one day — would give the DIP Lenders the ability to declare an immediate Event of Default and accelerate, which amounts to a "loaded gun" that shifts effective control of the restructuring from the Debtor to the DIP Lenders.] *— C&H]*
4.2 Extension of Milestones
Each DIP Milestone may be extended by the Required DIP Lenders (defined as DIP Lenders holding more than 50% of the aggregate DIP commitments) in their sole discretion, for such period and upon such conditions as the Required DIP Lenders may determine.
As of the date hereof, Nordbank International AG alone constitutes the Required DIP Lenders by virtue of its $45 million commitment (60% of the total $75 million facility).
> *[C&H COMMENT: Two significant issues with this provision.*
First, the "sole discretion" standard for milestone extensions is too restrictive. Under this standard, the DIP Lenders have no obligation to grant any extension, regardless of the Borrower's circumstances, the reasonableness of the request, or the progress of the restructuring. We should negotiate for a "consent not to be unreasonably withheld, conditioned, or delayed" standard, at minimum. Additionally, propose an automatic 15-day extension for any milestone if the Borrower certifies in writing that it is making good-faith progress toward the applicable milestone and no other Event of Default has occurred and is continuing. This automatic extension mechanism is increasingly common in DIP facilities and provides a meaningful safety valve.
Second, the Required DIP Lenders threshold of >50% of commitments allows Nordbank alone (at 60%) to control all milestone extensions — and, as discussed in other sections, all waivers and amendments as well. This concentration of decision-making authority in a single lender that is also the prepetition administrative agent and a major prepetition creditor may raise concerns with the Bankruptcy Court, the U.S. Trustee, and other stakeholders who may view it as evidence that the DIP facility is designed to give Nordbank effective control over the restructuring process. We should consider proposing one of the following alternatives: (a) require consent of both DIP Lenders (i.e., unanimous consent) for milestone extensions; or (b) raise the Required DIP Lenders threshold to 66.7%, which would require both Nordbank and Triton to agree. The latter approach is preferable from a negotiating standpoint, as it is a structural change that benefits both the Borrower and Triton (by giving Triton a voice).] *— C&H]*
5. ADEQUATE PROTECTION
5.1 Adequate Protection for Prepetition Senior Secured Lenders
As adequate protection of the interests of the prepetition Senior Secured Lenders in the DIP Collateral, the Borrower shall provide the following:
(a) Current-Pay Cash Interest. The Borrower shall pay current cash interest on the outstanding obligations under the Prepetition Credit Agreement at the non-default contract rate of SOFR + 375 basis points per annum on the approximately $540,000,000 outstanding principal balance. Adequate protection interest payments shall be made monthly in arrears on the last business day of each calendar month.
(b) Replacement Liens. The prepetition Senior Secured Lenders shall receive replacement liens on all DIP Collateral, which replacement liens shall be junior and subordinate to the DIP liens but senior to all other liens on the DIP Collateral (including the Prepetition Second Liens of BMC to the extent applicable to DIP Collateral).
(c) Superpriority Administrative Expense Claim. The prepetition Senior Secured Lenders shall receive a superpriority administrative expense claim under Section 507(b) of the Bankruptcy Code, to the extent that the adequate protection provided proves insufficient. Such §507(b) claim shall be junior to the DIP superpriority claim but senior to all other administrative expense claims.
(d) Payment of Professional Fees. The Borrower shall pay the reasonable and documented professional fees and expenses of Whitfield, Crane & Burgess LLP (counsel to the Ad Hoc Group of Senior Secured Lenders) and Draycott Advisory Group LLC (financial advisor to the Ad Hoc Group of Senior Secured Lenders), in each case incurred in connection with the DIP facility, the Chapter 11 case, and the restructuring, subject to Bankruptcy Court approval.
> *[C&H COMMENT: The adequate protection package for the prepetition senior secured lenders is generally consistent with market practice, but certain elements require careful analysis and negotiation.*
Cash Interest. Adequate protection cash interest at the non-default contract rate of SOFR + 375 bps on $540 million of outstanding principal represents a significant ongoing cash drain on the estate. Based on current SOFR (approximately 4.30% as of December 2022), the all-in adequate protection interest rate would be approximately 8.05%, yielding annual adequate protection interest payments of approximately $43.5 million, or approximately $3.6 million per month. (Note: the term sheet's original estimate of "$20.25 million per annum" assumed SOFR at approximately zero, which was applicable when the Prepetition Credit Agreement was executed in June 2019 but is no longer accurate.) KHP must confirm that the DIP budget can accommodate adequate protection payments of approximately $3.6 million per month in addition to DIP debt service, professional fees, and operating costs.
It is worth noting that under the Forbearance Agreement (executed October 10, 2022), default interest at SOFR + 575 bps was accruing on the full $540 million — yielding an all-in rate of approximately 10.05% and annual interest of approximately $54.3 million. The adequate protection proposal at the non-default rate therefore represents a reduction of approximately 200 bps and approximately $10.8 million per year compared to the forbearance-period default rate. This is a meaningful concession by the prepetition lenders and should be accepted. Attempting to negotiate below the non-default contract rate is likely to be a non-starter and would alienate the Ad Hoc Group.
Payment of Ad Hoc Group Professional Fees. Payment of WCB and Draycott fees is standard for DIP financing provided by a prepetition lender group. However, the term sheet does not include any cap on these fees, which could be substantial given WCB's billing rates and the scope of the restructuring. We should negotiate a monthly cap of $500,000 combined for WCB and Draycott adequate protection fee payments, with any excess subject to quarterly reconciliation and Court approval. For reference, WCB has approximately 8–10 attorneys staffed on the Thalassa matter, and Draycott has a team of 4–5 financial advisors; combined monthly fees could easily reach $600,000–800,000 without a cap.
Replacement Liens and §507(b) Claim. These are standard adequate protection elements and are acceptable as proposed. No objection.] *— C&H]*
5.2 Adequate Protection for Prepetition Second Lien Holder (BMC)
As adequate protection of the interests of Dralvecen Mezzanine Capital LLC ("BMC") in the DIP Collateral, the Borrower shall provide the following:
(a) Replacement Liens. BMC shall receive replacement liens on all DIP Collateral, which replacement liens shall be junior and subordinate to the DIP liens and the replacement liens of the prepetition Senior Secured Lenders.
(b) Superpriority Administrative Expense Claim. BMC shall receive a superpriority administrative expense claim under Section 507(b) of the Bankruptcy Code, junior to the DIP superpriority claim and the §507(b) claim of the prepetition Senior Secured Lenders.
(c) No Current-Pay Cash Interest. BMC shall not receive current-pay cash interest as adequate protection.
> *[C&H COMMENT: BMC will almost certainly argue that this adequate protection package is inadequate. The absence of current-pay cash interest for the second-lien holder, combined with the priming of BMC's liens by both the DIP and the first-lien adequate protection replacement liens, significantly impairs BMC's position.*
The adequacy of BMC's adequate protection depends on whether there is a sufficient "equity cushion" in the DIP Collateral to protect BMC's second-lien interests. On an enterprise-wide basis, the fleet appraisal by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, dated November 1, 2022) valued the fleet at $623 million — well above the $540 million senior secured debt, providing an equity cushion of approximately $83 million for the senior lenders. However, the TAI-only assets (which are the DIP Collateral) represent only a fraction of the total enterprise value:
— Houston terminal lease and improvements: estimated value $55–70 million
— TAI receivables (as of September 30, 2022): approximately $42 million
— Equipment, fixtures, and other TAI assets: approximately $15–20 million
— TAI total estimated asset value: approximately $112–132 million
Against this TAI-specific asset base, the DIP claims ($75 million maximum), the first-lien adequate protection replacement liens (allocable to the TAI collateral pool — potentially substantial), and the existing first-lien and second-lien claims must all be satisfied. On a TAI-only basis, after satisfying DIP claims and the senior secured lenders' adequate protection claims, the recovery available for BMC's second-lien position on TAI assets may be de minimis or zero.
Expect BMC's counsel (Kellner & Foss LLP, Theodore Kellner) to argue: (a) that the adequate protection is insufficient under §364(d); (b) that BMC should receive at least PIK interest as adequate protection; (c) that BMC should have a seat at the table on any plan negotiations; and (d) that the DIP facility is structured to benefit the first-lien Ad Hoc Group at BMC's expense.
We should prepare a TAI-specific valuation analysis for the adequate protection hearing, demonstrating that the DIP financing preserves the value of the TAI collateral (and by extension, BMC's recovery thereon) by funding the operations that generate TAI revenue and maintain the Houston terminal as a going concern. Without DIP financing, TAI's operations would cease, the Houston terminal lease would likely be terminated (or the value would deteriorate significantly), and the TAI-specific collateral pool would shrink dramatically — resulting in a worse outcome for BMC than the proposed adequate protection package. This "value preservation" argument has been accepted by courts in the Southern District of Texas in similar contexts.] *— C&H]*
5.3 Adequate Protection Reporting
As additional adequate protection, the Borrower shall provide the following reporting to the prepetition Senior Secured Lenders and BMC:
(a) Weekly 13-week rolling cash flow forecasts, prepared by Kensington Veltrian Partners LLC;
(b) Monthly unaudited financial statements for TAI, delivered within thirty (30) days of each month-end; and
(c) Monthly budget-to-actual variance reports, in the format specified in the DIP Credit Agreement.
> *[C&H COMMENT: Standard adequate protection reporting package. KHP (James Calloway) is already preparing 13-week cash flow models as part of the out-of-court restructuring track, so the incremental burden should be manageable. Ensure that TAI's VP Finance, Diana Restrepo, has the capacity and resources to produce the monthly unaudited financial statements and variance reports on the required timeline. Ms. Restrepo's team currently consists of seven finance and accounting professionals; confirm whether additional temporary staffing will be needed to handle the increased reporting burden of a Chapter 11 case.*
Also confirm that the adequate protection reporting obligation runs to the prepetition Collateral Agent (Nordbank) on behalf of all prepetition lenders and to BMC, and not directly to each individual prepetition lender. Direct reporting to thirty-plus individual lenders would be administratively burdensome and should be channeled through the agents.] *— C&H]*
6. CARVE-OUT
6.1 Professional Fee Carve-Out
Notwithstanding the superpriority administrative expense claims and the DIP liens, there shall be carved out from such claims and liens (the "Carve-Out") the following amounts:
(a) Pre-Trigger Notice Carve-Out. All unpaid professional fees, costs, and expenses of (i) the Debtor's retained professionals, including Calderwood & Harkness LLP (restructuring counsel), Kensington Veltrian Partners LLC (financial advisor), and any Chief Restructuring Officer (currently contemplated to be Alderney Management Advisors LLC, Richard Thornberg), and (ii) any official committee's retained professionals (if such committee is formed and retains professionals), in each case incurred in the ordinary course of the Chapter 11 case and allowed by the Bankruptcy Court, prior to delivery of a Carve-Out Trigger Notice (as defined in Section 6.2 below). The Pre-Trigger Notice Carve-Out is not subject to any dollar cap.
(b) Post-Trigger Notice Carve-Out. Following delivery of a Carve-Out Trigger Notice:
(i) Debtor's Professionals: An aggregate amount not to exceed $2,000,000 for professional fees and expenses of the Debtor's retained professionals incurred after delivery of the Carve-Out Trigger Notice; and
(ii) Committee Professionals: An aggregate amount not to exceed $1,000,000 for professional fees and expenses of any official committee's retained professionals incurred after delivery of the Carve-Out Trigger Notice.