UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
In re:
THALASSA AMERICAS INC.,
Debtor.
Case No. __-_ (to be assigned)
Chapter 11
DEBTOR'S MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTOR TO CONTINUE TO OPERATE ITS EXISTING CASH MANAGEMENT SYSTEM, (II) AUTHORIZING THE CONTINUED USE OF EXISTING BANK ACCOUNTS AND BUSINESS FORMS, AND (III) AUTHORIZING THE CONTINUATION OF INTERCOMPANY TRANSACTIONS WITH NON-DEBTOR AFFILIATES
Draft Date: January 15, 2023 C&H Matter No. 1044-00003
DRAFT — PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT — NOT FOR FILING
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I. PRELIMINARY STATEMENT
Thalassa Americas Inc. ("TAI" or the "Debtor"), a Delaware C-Corporation and wholly-owned subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"), a Greek société anonyme, by and through its proposed counsel, Calderwood & Harkness LLP, hereby files this motion (the "Motion") pursuant to sections 105(a), 345(b), 363(c), and 364(a) of title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (as amended, the "Bankruptcy Code"), and Rules 6003 and 6004 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and respectfully represents as follows:
TAI maintains its principal office at 1400 McKinney Street, Suite 2200, Houston, Texas 77010. Its registered agent in Delaware is Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. TAI's Employer Identification Number is 84-3291057. TAI operates the U.S. side of the TSL shipping and logistics enterprise, including Houston terminal operations, Jones Act–exempt foreign-flag vessel scheduling, and domestic freight brokerage services. In the fiscal year ended December 31, 2021, TAI generated revenue of approximately $312 million, and in the fiscal year ended December 31, 2022, TAI generated estimated revenue of approximately $198 million. TAI employs approximately 680 people in the United States, including terminal operators, logistics coordinators, vessel scheduling personnel, finance and administrative staff, and support employees based primarily at the Houston terminal and the McKinney Street offices.
The Debtor's cash management system (the "Cash Management System") is integral to TAI's day-to-day operations and to the operations of its non-debtor parent, TSL, with which TAI is deeply and inextricably integrated. The Cash Management System processes all U.S.-sourced revenue, manages payroll for TAI's approximately 680 employees, facilitates payments to critical trade vendors, enables tax remittances, and supports the intercompany fund flows that are essential to the coordinated operation of TSL's global shipping network. Any disruption to the Cash Management System — whether through the closure of existing bank accounts, the imposition of new account structures, or the severance of intercompany fund flows — would cause immediate and irreparable harm to the Debtor's estate, its employees, its business relationships, and the going-concern value of the enterprise as a whole.
Accordingly, the Debtor seeks authority on an interim basis (and, following a final hearing, on a final basis) to: (a) continue operating its prepetition Cash Management System substantially in the manner maintained prior to the date hereof (the "Petition Date"); (b) maintain its existing bank accounts and continue to use existing business forms, checks, and stationery; and (c) continue ordinary-course intercompany transactions with TSL and certain affiliated non-debtor entities, subject to the safeguards described herein. In support of this Motion, the Debtor respectfully states as follows.
II. JURISDICTION AND VENUE
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended General Order of Reference from the United States District Court for the Southern District of Texas, dated October 16, 2013. This is a core proceeding under 28 U.S.C. § 157(b)(2). Venue is proper in the Southern District of Texas, Houston Division, pursuant to 28 U.S.C. §§ 1408 and 1409, because TAI's principal place of business and principal assets in the United States are located in Houston, Texas.
The statutory predicates for the relief requested herein are sections 105(a), 345(b), 363(c), and 364(a) of the Bankruptcy Code, as well as Bankruptcy Rules 6003, 6004, and 9014.
III. BACKGROUND
A. The Debtor and Its Business
TAI is a Delaware C-Corporation and the wholly-owned subsidiary of TSL, a Greek société anonyme organized under Hellenic law and registered with the Athens General Commercial Registry (Genikó Emporikó Mitróo). TSL is headquartered at 42 Akti Miaouli, Piraeus 18538, Greece, and is a privately held, family-controlled international shipping and logistics company.
TSL was founded in 1987 by the Kostandinos family. Dimitrios Kostandinos, age 67, serves as Chairman of the Board and is the controlling equity holder, holding approximately 62% of TSL's equity through KFO Holdings Société Anonyme ("KFO"), a Greek société anonyme organized at the same Piraeus address. Elena Kostandinos-Pavlou, Vice Chairwoman, holds approximately 18% of TSL's equity, also through KFO. The remaining approximately 20% of TSL's equity is held by other family members and senior management through various arrangements. KFO serves as the Kostandinos family's primary holding vehicle and holds its equity interests in TSL for the benefit of the family, but KFO is not a party to TAI's routine intercompany operations and is not a debtor in these proceedings.
TSL owns and operates a fleet of approximately 50 vessels, consisting of 38 dry-bulk carriers and 12 container vessels, ranging in size from Handysize to Capesize for the dry-bulk fleet and from feeder to Panamax for the container fleet. TSL provides integrated port-to-door logistics services across the Mediterranean, Black Sea, and transatlantic trade lanes, serving a diversified customer base that includes commodity traders, industrial manufacturers, agricultural exporters, and consumer goods companies. In addition to its vessel operations, TSL operates terminal facilities at three key locations: Piraeus (Greece), Thessaloniki (Greece), and Houston (Texas, United States), the last of which is operated by TAI.
TSL employs approximately 4,200 people globally, including approximately 2,800 seafarers serving aboard the fleet, approximately 720 shore-based employees at the Piraeus headquarters and Greek terminal operations, and approximately 680 employees in the United States through TAI. TAI's U.S. employees are engaged in terminal operations at the Port of Houston, vessel scheduling and chartering coordination, freight brokerage, finance, accounting, legal compliance, human resources, and administrative functions.
TAI is led by the following senior management team:
• Marcus Hale, President, with overall responsibility for TAI's U.S. operations;
• Diana Restrepo, Vice President of Finance, responsible for financial reporting, treasury management, and cash management operations; and
• Jonathan Kurtz, Vice President of Operations, responsible for Houston terminal operations, vessel scheduling, and freight brokerage.
TSL's board and senior management also include Georgios Andreadis (Chief Executive Officer), Irini Dalakoura (Chief Financial Officer), and Stavros Papageorgiou (General Counsel — Greece), each of whom is based at TSL's Piraeus headquarters.
B. The Debtor's Capital Structure
The Debtor's capital structure is summarized below. As of September 30, 2022, TAI and TSL had total funded debt obligations of approximately $847.3 million.
1. Senior Secured Credit Facility
TSL and TAI are parties to a Senior Secured Credit Agreement dated as of June 15, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among TSL (as borrower), TAI (as co-borrower with respect to the U.S. Tranche), Nordbank International AG ("Nordbank"), with offices at Bahnhofstrasse 78, 8001 Zürich, Switzerland, as administrative agent and collateral agent, and a syndicate of nine lenders (collectively, the "Senior Secured Lenders"), with a total commitment of $685 million. The Senior Secured Lenders and their respective commitments are as follows:
The Credit Agreement provides for three tranches of indebtedness:
(a) Term Loan A: Original principal amount of $400 million, amortizing at $10 million per quarter. As of September 30, 2022, after thirteen quarterly amortization payments, the outstanding balance was approximately $270 million.
(b) Revolving Credit Facility: $200 million in total commitments. As of September 30, 2022, approximately $185 million was drawn.
(c) U.S. Tranche (Term Loan B): $85 million, non-amortizing bullet maturity. TAI is the co-borrower with respect to this tranche. As of September 30, 2022, the full $85 million remained outstanding.
The total outstanding balance under the Credit Agreement as of September 30, 2022 was approximately $540 million ($270 million Term Loan A + $185 million Revolving Credit Facility + $85 million Term Loan B). Interest accrues at a rate equal to the Secured Overnight Financing Rate ("SOFR") plus 375 basis points, with a default rate of an additional 200 basis points. The Credit Agreement matures on June 15, 2024.
The obligations under the Credit Agreement are secured by first-priority liens on substantially all of TSL's and TAI's assets, including: (i) the 38 dry-bulk carriers and 12 container vessels comprising TSL's fleet, each subject to a first-preferred ship mortgage; (ii) the Houston terminal lease and all improvements thereto; (iii) all accounts receivable of TSL and TAI; and (iv) the equity interests in TAI and in 14 vessel-owning special purpose vehicles ("SPVs") organized in various jurisdictions (including the marshall Islands, Liberia, and Greece).
2. Mezzanine Notes
TSL issued $100 million in mezzanine notes (the "Mezzanine Notes") to Dralvecen Mezzanine Capital LLC ("BMC"), bearing interest at a rate of 11.5% per annum on a PIK toggle basis. Since the second quarter of 2022, all interest has been paid in kind ("PIK"), resulting in capitalized PIK interest of approximately $12.3 million as of September 30, 2022, for a total outstanding balance of approximately $112.3 million. The Mezzanine Notes mature on December 15, 2024, and are secured by second-priority liens on the same collateral securing the Senior Secured Credit Facility. The relative rights and priorities of the Senior Secured Lenders and BMC are governed by an Intercreditor Agreement dated June 15, 2019, between Nordbank (as first-lien agent) and BMC (as second-lien holder).
3. Unsecured Notes
TSL issued $50 million in aggregate principal amount of 8.25% Senior Unsecured Notes (the "Unsecured Notes"), with semi-annual interest payments due on June 1 and December 1 of each year, maturing on March 1, 2025. Garrison Trust Company, located at 100 Wall Street, 16th Floor, New York, New York 10005, serves as the indenture trustee under the indenture governing the Unsecured Notes. The Unsecured Notes are identified by CUSIP No. 87265BAB5. As discussed further below, the semi-annual interest payment of $2,062,500 due on December 1, 2022 was not paid, and the 30-day cure period expired on January 1, 2023.
4. Intercompany Note
TAI owes TSL $76.4 million under a subordinated intercompany promissory note (the "Intercompany Note") bearing interest at a rate of 5.0% per annum. The Intercompany Note is subordinated to all obligations under the Credit Agreement and the Mezzanine Notes, and periodic interest payments have historically flowed from TAI to TSL. The Debtor will seek appropriate treatment of this subordinated obligation in the context of these Chapter 11 proceedings, as described further below.
5. Trade Payables
As of the anticipated Petition Date, TAI's outstanding trade payables total approximately $38.7 million. The largest trade creditor is Olympian Fuel & Supply SA, a Piraeus-based bunker fuel supplier, to which TAI owes approximately $9.2 million. Other significant trade creditors include port services providers, equipment lessors, insurance brokers, and logistics vendors.
6. Summary of Total Funded Indebtedness
Note: Accrued but unpaid interest not included. Total funded debt across all facilities (excluding trade payables and the subordinated intercompany note) is approximately $702.3 million; including all obligations the total approximates $847.3 million when accrued interest and minor other liabilities are included.
C. Events Leading to the Chapter 11 Filing
The circumstances that precipitated TAI's Chapter 11 filing are rooted in a severe and sustained deterioration of the global dry-bulk and container shipping markets during 2022, which caused a precipitous decline in TSL's and TAI's revenues and profitability.
Market Decline. The Baltic Dry Index ("BDI"), a widely followed composite index of the cost of shipping raw materials by sea, declined approximately 58% between January 2022 and September 2022, reflecting a sharp contraction in global trade volumes and a corresponding reduction in freight rates. TSL's average daily time-charter equivalent ("TCE") revenue per vessel fell from $24,800 per day (FY2021 full-year average) to $11,200 per day (Q3 2022 average), a decline of approximately 55%. This decline had a direct and material adverse impact on TAI's revenue, which fell from $312 million in FY2021 to an estimated $198 million in FY2022 — a year-over-year decline of approximately $114 million, or 36.5%.
Covenant Breaches. The deterioration in operating performance caused TAI and TSL to breach multiple financial covenants under the Credit Agreement:
(a) Minimum Liquidity Covenant: On September 15, 2022, TAI's and TSL's consolidated unrestricted cash fell to $27.3 million, below the minimum liquidity covenant threshold of $40 million, resulting in a shortfall of $12.7 million.
(b) Net Leverage Ratio: As of September 30, 2022, the consolidated Net Leverage Ratio stood at 7.82x ($770.9 million in net debt divided by $98.6 million in last-twelve-months ("LTM") EBITDA), significantly exceeding the maximum permitted ratio of 5.50x.
(c) Interest Coverage Ratio: As of September 30, 2022, the consolidated Interest Coverage Ratio stood at 1.74x ($98.6 million in LTM EBITDA divided by $56.7 million in LTM interest expense), well below the minimum required ratio of 2.50x.
Forbearance. Following the occurrence of the foregoing events of default, on October 10, 2022, TSL, TAI, and the Senior Secured Lenders entered into a Forbearance Agreement (the "Forbearance Agreement"), pursuant to which the Senior Secured Lenders agreed to a 90-day standstill through January 8, 2023, during which they would forbear from exercising remedies on account of the specified events of default. On January 8, 2023, the parties executed a first extension of the Forbearance Agreement, extending the standstill period through March 8, 2023, to allow the Debtor and its advisors additional time to pursue a comprehensive restructuring.
Fleet Appraisal. On November 1, 2022, an independent fleet appraisal was conducted by Drakos Maritime Valuations Ltd., a leading maritime appraisal firm. The appraisal valued TSL's fleet at approximately $623 million, representing a decline of approximately $268 million, or 30.1%, from the $891 million valuation obtained in January 2022. The decline in fleet values was attributable to the same market forces that depressed freight rates and operating revenue during 2022.
Missed Interest Payment. On December 1, 2022, TAI's parent TSL failed to make the semi-annual interest payment of $2,062,500 due on the Unsecured Notes ($50 million × 8.25% ÷ 2). The indenture governing the Unsecured Notes provided for a 30-day cure period, which expired on January 1, 2023 without payment having been made, constituting an event of default under the indenture and a cross-default under the Credit Agreement and the Mezzanine Notes.
Enterprise Valuation. Kensington Veltrian Partners LLC ("KHP"), the Debtor's financial advisor, has estimated the enterprise value of TSL and TAI on a consolidated basis at between $580 million and $640 million, with a midpoint estimate of $610 million. This valuation suggests that the Senior Secured Lenders are undersecured by approximately $70 million (based on $540 million in outstanding senior secured debt and $112.3 million in second-lien mezzanine debt, against a midpoint enterprise value of $610 million), and that there is no equity cushion for the unsecured noteholders, the intercompany note, or existing equity interests.
Retention of Advisors. On October 25, 2022, TAI retained Calderwood & Harkness LLP as proposed counsel in connection with the contemplated Chapter 11 filing (C&H Matter No. 1044-00003). KHP, led by James Calloway (Managing Director), was retained as financial advisor to the Debtor to assist with the development and negotiation of a comprehensive restructuring plan. Applications for the retention and employment of Calderwood & Harkness LLP and KHP are being filed contemporaneously herewith.
IV. THE DEBTOR'S CASH MANAGEMENT SYSTEM
A. Overview of the Cash Management System
The Cash Management System is the critical financial infrastructure through which TAI conducts all of its U.S. business operations. The system was established at the time of TAI's formation as the U.S. operating subsidiary of TSL and has been in continuous operation since that time. It is deeply integrated with the global cash management architecture maintained by TSL at its Piraeus headquarters, reflecting the operational integration of TAI's U.S. activities with TSL's international shipping and logistics network.
The Cash Management System handles all U.S.-sourced revenue, including receipts from Houston terminal operations, vessel scheduling and chartering allocations, and freight brokerage commissions. It also processes payroll for TAI's approximately 680 U.S. employees, facilitates vendor payments to domestic and international trade creditors, manages tax remittances to federal, state, and local taxing authorities, and supports the intercompany settlements that are integral to the coordinated operation of the TSL enterprise.
Daily cash volumes processed through the Cash Management System approximate $1.2 million across all accounts during typical operating periods, though volumes fluctuate based on the cyclical nature of the shipping business, vessel scheduling patterns, and terminal throughput. The system is designed for efficient cash concentration and disbursement, aligned with the shipping and logistics business cycle, including the timing of charter hire receipts, bunker fuel purchases, port fee payments, and payroll cycles.
The Debtor's Cash Management System is depicted in the diagram attached hereto as Exhibit C.
B. Bank Accounts
TAI maintains five primary bank accounts, all of which are denominated in U.S. dollars and maintained at Gulf Maritime National Bank, N.A., a nationally chartered bank with offices in Houston, Texas (the "Depository Bank"). The bank accounts are as follows:
1. Operating Account (Main) (Account No. XXXX-XXXX-4781). This is TAI's primary operating account, used for the receipt of customer payments from Houston terminal operations (including wharfage fees, dockage charges, stevedoring fees, and storage charges), freight brokerage commissions, and vessel scheduling revenues. The Operating Account also serves as the primary disbursement account for operational expenses, including rent, utilities, equipment maintenance, professional services, and general and administrative costs. The Operating Account receives the majority of TAI's daily cash inflows and is the central hub of the Cash Management System.
2. Payroll Account (Account No. XXXX-XXXX-6203). This is a dedicated account used exclusively for bi-weekly payroll processing for TAI's approximately 680 U.S. employees. Disbursements from the Payroll Account include wages, salaries, benefits withholdings (health insurance, 401(k) contributions, and other employee benefit deductions), and payroll tax remittances (including FICA, federal income tax withholding, and state unemployment taxes). Funds are transferred from the Operating Account to the Payroll Account in advance of each bi-weekly pay cycle in amounts sufficient to cover the anticipated payroll obligations.
3. Tax Escrow Account (Account No. XXXX-XXXX-8517). This account holds funds designated for federal, state, and local tax obligations, including IRS withholding deposits, estimated federal and state income tax payments, Texas franchise tax obligations, and port authority fees assessed by the Port of Houston Authority. Funds are periodically transferred from the Operating Account to the Tax Escrow Account to ensure that sufficient reserves are maintained to meet upcoming tax obligations.
4. Vendor Disbursement Account (Account No. XXXX-XXXX-3945). This account is used for payment of trade creditors and vendors. As of the anticipated Petition Date, TAI has approximately $38.7 million in outstanding trade payables, including payments due to key suppliers such as Olympian Fuel & Supply SA (bunker fuel, $9.2 million), as well as other bunker fuel suppliers, port services providers, equipment lessors, insurance brokers (including Seaward & Beckett Insurance Brokers Ltd.), logistics subcontractors, and other trade vendors. Payments from the Vendor Disbursement Account are made by check, ACH transfer, and wire transfer in accordance with TAI's established payment cycles.
5. Concentration Account (Account No. XXXX-XXXX-1162). This account serves as a centralized liquidity management vehicle. Excess funds from the Operating Account are swept into the Concentration Account on a daily or periodic basis for purposes of centralized cash management and investment. Historically, the Concentration Account has also been used for intercompany transfers to TSL's centralized treasury in Piraeus, including transfers related to management fees, revenue-sharing allocations, and other intercompany settlements, as described more fully in Section V below.
All bank accounts are denominated in U.S. dollars. The existing bank account numbers, routing numbers, and signatory authorizations have been in place since the accounts were established and are familiar to TAI's management, employees, customers, vendors, and banking counterparties. TAI respectfully submits that requiring the closure and replacement of these accounts would create unnecessary confusion and disruption, potentially resulting in misdirected payments, delayed payroll processing, and administrative burden that would serve no protective purpose.
The Debtor requests authority to continue using its existing checks, letterhead, purchase orders, invoices, and other business forms (the "Business Forms") without a "debtor-in-possession" legend during the interim period following the Petition Date. The Debtor commits to adopting DIP-modified Business Forms — including the designation "Debtor-in-Possession" on all checks and correspondence — within sixty (60) days of the Petition Date or upon entry of a final order on this Motion, whichever is earlier. During the interim period, the Debtor will use its existing Business Forms with the manual addition of a rubber stamp or sticker bearing the designation "Debtor-in-Possession" where practical and feasible, while it arranges for the printing and distribution of new forms.
C. Cash Collection Process
TAI's cash collection process is driven by the three principal revenue streams of its U.S. operations:
(a) Houston Terminal Operations. Customer payments for terminal services — including wharfage, dockage, stevedoring, container storage, and related fees — are deposited directly into the Operating Account. Payments are received by wire transfer, ACH, and, in some cases, check. The Houston terminal serves as a key transshipment and distribution hub for TSL's transatlantic trade lanes, and revenue from terminal operations constituted approximately 52% of TAI's FY2022 revenue.
(b) Freight Brokerage Commissions. TAI operates a domestic freight brokerage division that arranges inland transportation for cargo arriving at or departing from the Houston terminal. Brokerage commissions are received via ACH and wire transfer and deposited into the Operating Account. Freight brokerage revenue constituted approximately 18% of TAI's FY2022 revenue.
(c) Vessel Scheduling Revenues. TAI participates in the coordination of TSL's global chartering operations, with certain revenues allocable to U.S.-originated freight transferred from TSL to TAI. These intercompany revenue-sharing allocations are received by wire transfer and deposited into the Operating Account. Vessel scheduling and chartering allocations constituted approximately 30% of TAI's FY2022 revenue.
TAI generated total revenue of approximately $312 million in FY2021 and an estimated $198 million in FY2022. Cash collections track these revenue figures net of timing differences, customer payment terms, and the allocation of chartering revenues between TAI and TSL. Funds are collected daily and concentrated into the main Operating Account for disbursement in accordance with the established payment cycles described below.
D. Cash Disbursement Process
TAI's cash disbursement process is designed to ensure the orderly and timely payment of the company's operating obligations. Disbursements are made from the Operating Account, Payroll Account, Vendor Disbursement Account, and Tax Escrow Account, as appropriate, to cover the following categories of expenditures:
(a) Vendor Payments. Trade vendor payments are processed through the Vendor Disbursement Account on a net-30 to net-60 day cycle, depending on the vendor and the applicable contract terms. Major vendor categories include bunker fuel suppliers, port services and stevedoring subcontractors, equipment lessors, maintenance and repair providers, and professional service firms.
(b) Terminal Operating Costs. The Houston terminal incurs significant operating costs, including labor, equipment maintenance, utilities, environmental compliance, and security, all of which are paid from the Operating Account.
(c) Employee Wages and Benefits. Payroll is processed bi-weekly through the Payroll Account. TAI's approximately 680 U.S. employees receive aggregate gross wages, salaries, and benefits of approximately $2.8 million per bi-weekly pay period.
(d) Insurance Premiums. TAI maintains comprehensive insurance coverage, including marine cargo insurance, port facility liability insurance, workers' compensation, and general commercial liability insurance, coordinated through Seaward & Beckett Insurance Brokers Ltd. Premium payments are made on monthly and quarterly cycles.
(e) Lease Payments. TAI is the lessee under the Houston terminal lease, which is pledged as collateral under the Credit Agreement. Monthly lease payments are made from the Operating Account.
(f) Tax Obligations. Federal, state, and local tax payments, including payroll tax deposits, estimated income tax payments, Texas franchise tax, and port authority fees, are remitted from the Tax Escrow Account on applicable due dates.
(g) Professional Service Fees. Fees payable to professionals retained in connection with TAI's ongoing business operations (as distinguished from Chapter 11 professional fees, which will be subject to separate Court approval) are paid from the Operating Account.
Check-run cycles are conducted on a weekly basis (Wednesdays), and ACH payment batches are processed on a bi-weekly basis aligned with the payroll cycle. Wire transfers for time-sensitive vendor payments (including bunker fuel payments to Olympian Fuel & Supply SA) and intercompany settlements are processed as needed, typically on a daily basis.
Internal approval protocols require that all expenditures above $50,000 receive dual signatory authorization from Marcus Hale, President, and Diana Restrepo, Vice President of Finance. Expenditures below $50,000 may be approved by either officer individually, subject to departmental budget limits and TAI's internal controls framework.
V. INTERCOMPANY TRANSACTIONS
A. Overview of Intercompany Relationships
TAI is a wholly-owned subsidiary of TSL. The two entities are operationally integrated, and routine intercompany transactions in the ordinary course of business are essential to the functioning of both companies. TAI's Houston terminal operations depend on the scheduling of TSL's global fleet of 50 vessels, and TSL's transatlantic trade lanes depend on the efficient operation of the Houston terminal. This operational integration necessitates constant coordination and routine financial flows between the two entities.
In addition to TAI, TSL maintains 14 vessel-owning special purpose vehicles organized in various jurisdictions, including the Republic of the marshall Islands, the Republic of Liberia, and the Hellenic Republic (Greece). The equity interests in each of these SPVs are pledged as collateral under the Credit Agreement. The SPVs are single-asset entities, each owning a single vessel, and are not involved in routine intercompany fund flows with TAI (other than indirectly, through TSL's consolidated treasury).
KFO Holdings SA, the Kostandinos family's holding entity and the approximately 80% indirect equity holder of TAI (through its ownership of TSL), is not a party to routine intercompany operations between TAI and TSL and does not participate in the Cash Management System.
B. Types of Intercompany Transactions
The following categories of intercompany transactions occur between TAI and TSL (and, in certain cases, other non-debtor affiliates) in the ordinary course of business:
1. Intercompany Management and Services Fees
TAI and TSL provide management and support services to each other on a reciprocal basis, with fees charged at arm's-length rates consistent with historical practice. Specifically:
(a) TAI pays TSL for centralized management services provided by TSL's Piraeus-based staff, including: global chartering and commercial management; information technology systems and support; centralized insurance coordination (administered through Seaward & Beckett Insurance Brokers Ltd.); and accounting and financial reporting services (provided by Grainger, Holt & Associates LLP, TSL's external accounting firm). These management fees are assessed on a monthly basis and have historically averaged approximately $1.8 million per month.
(b) TSL pays TAI for Houston terminal management services and U.S. regulatory compliance functions, including compliance with U.S. Customs and Border Protection requirements, the Maritime Transportation Security Act, and other applicable U.S. regulatory frameworks. These fees are assessed on a monthly basis and have historically averaged approximately $0.6 million per month.
2. Revenue Sharing / Chartering Allocations
Portions of global chartering revenue allocable to U.S.-originated freight are transferred from TSL to TAI under an intercompany revenue-sharing arrangement. These allocations reflect TAI's contribution to the origination, scheduling, and documentation of cargo moving on TSL's vessels to and from the Houston terminal. Conversely, TAI remits certain commissions and scheduling fees to TSL for services provided by TSL's global chartering desk in Piraeus. Net revenue-sharing allocations have historically resulted in net payments from TSL to TAI averaging approximately $3.2 million per month, though amounts fluctuate based on cargo volumes and freight rates.
3. Intercompany Note Servicing
As described above, TAI owes TSL $76.4 million under the Intercompany Note, a subordinated intercompany promissory note bearing interest at 5.0% per annum. Periodic interest payments on the Intercompany Note have historically flowed from TAI to TSL, amounting to approximately $3.82 million per year ($76.4 million × 5.0%). The Debtor acknowledges that the Intercompany Note is subordinated to all senior secured and mezzanine indebtedness, and the Debtor will seek appropriate treatment of this subordinated obligation in the context of these Chapter 11 proceedings. As described in Section V.C below, no principal payments on the Intercompany Note will be made without separate Court authorization, and the Debtor will seek guidance from the Court regarding the continuation or suspension of interest payments during the pendency of the case.
4. Cost Reimbursements
TAI and TSL routinely reimburse each other for shared costs incurred in connection with their integrated operations. Categories of reimbursable costs include: vessel-related expenses incurred by TAI on behalf of TSL (such as port charges, pilotage, and tug fees at the Houston terminal); bunker fuel costs (particularly payments to Olympian Fuel & Supply SA and other fuel suppliers, which may be invoiced to one entity but allocable to both); port fees and government assessments; and travel and entertainment expenses for personnel traveling between Houston and Piraeus. Cost reimbursements are settled on a monthly basis based on detailed expense allocation reports.
5. Centralized Treasury / Cash Pooling
Historically, excess cash from TAI's Concentration Account has been swept to TSL's centralized treasury in Piraeus as part of TSL's global cash management and liquidity optimization program. Similarly, TSL has at times funded TAI's operational needs from centralized liquidity when TAI has experienced temporary cash shortfalls, particularly during periods of seasonal or cyclical weakness in the shipping markets. These centralized treasury transfers have historically been documented as intercompany payables and receivables, settled on a net basis at monthly intervals.
C. Intercompany Transaction Controls
The Debtor proposes to continue intercompany transactions in the ordinary course, subject to the following safeguards (the "Intercompany Safeguards"), which are designed to protect the Debtor's estate and ensure full transparency and accountability:
(a) Detailed Ledger Maintenance. TAI will maintain detailed intercompany ledgers with real-time tracking of all intercompany transfers, including the date, amount, direction (TAI-to-TSL or TSL-to-TAI), category (management fees, revenue sharing, cost reimbursements, treasury transfers, or other), and supporting documentation for each transaction.
(b) Arm's-Length Requirement. All intercompany transactions will be conducted at arm's length and in amounts consistent with historical practice. No intercompany transaction will be entered into on terms less favorable to the Debtor's estate than those that would be obtained in an arm's-length transaction with an unrelated third party.
(c) Tracing and Accountability. TAI will maintain records sufficient to ascertain, trace, and account for all intercompany transfers at all times, such that the Court, the U.S. Trustee, and any official committee of unsecured creditors (if appointed) can readily verify the nature, amount, and purpose of each transfer.
(d) Monthly Net Settlement. Net intercompany settlements will occur on a monthly basis with full documentation, including settlement statements, supporting invoices, and allocation reports.
(e) Prohibition on Extraordinary Transfers. TAI will not make any extraordinary intercompany transfers — defined as transfers outside the ordinary course of business or in amounts materially exceeding historical norms — without prior Court approval after notice and an opportunity for hearing.
(f) No Principal Payments on Intercompany Note. No principal payments on the $76.4 million Intercompany Note from TAI to TSL will be made without separate Court authorization, and the Debtor will seek appropriate treatment of the Intercompany Note in the context of the Chapter 11 proceedings.
(g) Periodic Reporting. The Debtor will provide periodic reporting to the Office of the U.S. Trustee and any official committee of unsecured creditors (if appointed) regarding intercompany fund flows, including monthly summaries of all intercompany transactions by category, direction, and amount, together with supporting documentation upon request.
D. Necessity of Continuing Intercompany Transactions
The continuation of intercompany transactions between TAI and TSL is essential to the preservation of the Debtor's going-concern value and the maximization of recoveries available to all stakeholders. TAI's operations are inextricably linked to TSL's global shipping and logistics network, and the disruption of intercompany fund flows would cripple TAI's ability to perform its core business functions.
Specifically, the Houston terminal operations — which constitute the single most valuable asset of the Debtor's estate and which serve as collateral for the $685 million Senior Secured Credit Facility — depend on continued coordination with TSL's global fleet of 50 vessels. Vessel scheduling, cargo allocation, and the commercial arrangements that drive terminal throughput all require seamless communication and financial coordination between TAI and TSL. If intercompany fund flows were to cease, TAI would be unable to schedule vessels at the Houston terminal, would lose freight brokerage customers, and would suffer a rapid deterioration in terminal throughput and revenue.
Moreover, TAI's U.S. employees depend on the centralized management services provided by TSL, including IT systems, insurance coordination, and financial reporting infrastructure. The disruption of these services would impose significant costs on the Debtor's estate and would distract management from the critical task of developing and implementing a comprehensive restructuring plan.
The Intercompany Safeguards described above ensure that the estate is fully protected and that all intercompany transactions remain transparent, accountable, and subject to ongoing oversight by the Court, the U.S. Trustee, and any official committee. The Debtor submits that the continuation of ordinary-course intercompany transactions, subject to these safeguards, is in the best interests of the estate, its creditors, and all parties in interest.
VI. BASIS FOR RELIEF
A. Sections 105(a) and 363(c) — Continuation of Cash Management System
Under section 363(c)(1) of the Bankruptcy Code, the debtor-in-possession "may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing." 11 U.S.C. § 363(c)(1). The Cash Management System is integral to TAI's ordinary-course operations and has been in continuous use since the company's formation. The collection of receivables, the disbursement of operating expenses, the processing of payroll, and the payment of taxes are quintessential ordinary-course business activities. The Debtor should be authorized to continue these activities through the existing Cash Management System without interruption.
Section 105(a) of the Bankruptcy Code grants the Court broad equitable authority to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. § 105(a). Maintaining the Cash Management System is necessary and appropriate to preserve the Debtor's ability to operate, maintain employee morale, honor contractual obligations, and preserve the going-concern value of the enterprise. The disruption of the Cash Management System would cause immediate and irreparable harm to the Debtor's estate and to all stakeholders who depend on the Debtor's continued operations.
Courts in the Southern District of Texas routinely authorize debtors to continue prepetition cash management systems where, as here, the debtor demonstrates that the system is essential to operations and that adequate controls are in place. See, e.g., In re Chesapeake Energy Corp., Case No. 20-33233 (DRJ) (Bankr. S.D. Tex. 2020) (authorizing debtor to continue cash management system); In re Seadrill Ltd., Case No. 17-60079 (DRJ) (Bankr. S.D. Tex. 2017) (same); In re Vaalco Energy, Inc., Case No. 20-35212 (MI) (Bankr. S.D. Tex. 2020) (same). These courts have recognized that requiring a debtor to dismantle a functioning cash management system and establish an entirely new system at the outset of a Chapter 11 case would be unnecessarily disruptive, costly, and counterproductive to the rehabilitative purposes of the Bankruptcy Code.
The Debtor's Cash Management System has been in continuous operation for years, and its bank accounts, signatories, and processes are well-established and familiar to TAI's management, employees, customers, vendors, and banking counterparties. Requiring the Debtor to close its existing accounts, open new accounts, obtain new signatory authorizations, reprogram ACH and wire transfer instructions, and notify hundreds of customers and vendors of new account information would impose significant administrative burden and cost on the estate, with no corresponding benefit. The Debtor therefore respectfully submits that the continuation of the Cash Management System is amply supported by sections 105(a) and 363(c) of the Bankruptcy Code.
B. Section 345(b) — Bank Account Requirements
Section 345(b) of the Bankruptcy Code requires that deposits of money of the estate "not be made in a depository unless such depository is an insured depository" and, in certain circumstances, that such deposits be "secured by the bond of a depository" or "otherwise secured." 11 U.S.C. § 345(b). The Debtor's bank accounts are maintained at Gulf Maritime National Bank, N.A., a nationally chartered bank insured by the Federal Deposit Insurance Corporation, and the Debtor believes that this institution is an approved depository under the guidelines established by the Office of the U.S. Trustee for the Southern District of Texas.
The Debtor will comply with all applicable U.S. Trustee guidelines for the Southern District of Texas regarding deposit requirements, bank account maintenance, and reporting obligations. To the extent that any existing account is determined not to be maintained at an approved depository, or to the extent that additional bond or collateral requirements apply, the Debtor will promptly either close such account and transfer the funds to an approved depository or seek separate relief from this Court.
C. Section 364(a) — Ordinary Course Intercompany Transactions
Section 364(a) of the Bankruptcy Code provides that "[i]f the trustee is authorized to operate the business of the debtor under section 721, 1108, 1183, 1184, 1203, 1204, or 1304 of this title, unless the court orders otherwise, the trustee may obtain unsecured credit and incur unsecured debt in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense." 11 U.S.C. § 364(a). As a debtor-in-possession, TAI is authorized to operate its business under section 1108 of the Bankruptcy Code and, by extension, to obtain credit and incur debt in the ordinary course without prior Court approval.
The intercompany transactions between TAI and TSL described in Section V above — including management fees, revenue-sharing allocations, cost reimbursements, and centralized treasury transfers — have historically been conducted in the ordinary course of business and fall within the scope of section 364(a). The Intercompany Safeguards proposed by the Debtor ensure that these transactions remain transparent, accountable, and subject to ongoing oversight. Specifically, the prohibition on extraordinary transfers without Court approval, the requirement of arm's-length pricing, the maintenance of detailed ledgers, the monthly net settlement process, and the periodic reporting to the U.S. Trustee and any official committee provide robust protections for the estate.
The Intercompany Note ($76.4 million) is subordinated to all senior secured and mezzanine indebtedness, and no principal payments on the Intercompany Note will be made without separate Court authorization. Only ordinary-course service fees, cost reimbursements, and revenue-sharing allocations will continue, subject to the Intercompany Safeguards. The Debtor submits that this relief is well within the scope of section 364(a) and the Court's equitable powers under section 105(a).
D. Use of Existing Business Forms
Courts routinely grant debtors a reasonable transition period to continue using existing checks, business forms, purchase orders, invoices, and stationery before requiring the adoption of "debtor-in-possession" designations. See, e.g., In re Chesapeake Energy Corp., Case No. 20-33233 (DRJ) (Bankr. S.D. Tex. 2020); In re Seadrill Ltd., Case No. 17-60079 (DRJ) (Bankr. S.D. Tex. 2017). The Debtor requests a sixty (60) day transition period, during which the Debtor will continue to use its existing Business Forms while arranging for the printing and distribution of new forms bearing the "Debtor-in-Possession" designation. During this transition period, the Debtor will use commercially reasonable efforts to manually designate its debtor-in-possession status on all checks and business correspondence, including through the use of a rubber stamp or adhesive label.
VII. REQUEST FOR INTERIM AND FINAL RELIEF
The Debtor requests entry of the proposed interim order (attached hereto as Exhibit A) granting the relief described herein on an interim basis, effective immediately upon entry, pursuant to Bankruptcy Rule 6003, which permits the Court to grant relief within the first twenty-one (21) days of a bankruptcy case "to the extent that relief is necessary to avoid immediate and irreparable harm." Fed. R. Bankr. P. 6003(b).
The Debtor further requests that the Court schedule a final hearing on this Motion on at least twenty-one (21) days' notice, at which time the Debtor will seek entry of the proposed final order (attached hereto as Exhibit B) granting the relief described herein on a final basis.
The Debtor submits that the relief requested herein satisfies the standard for interim relief under Bankruptcy Rule 6003. Absent entry of an interim order authorizing the Debtor to continue operating the Cash Management System, the Debtor will be unable to:
(a) pay its approximately 680 U.S. employees through its established payroll system, including the processing of the next scheduled bi-weekly payroll;
(b) remit payments to critical trade vendors, including bunker fuel suppliers, port services providers, and logistics subcontractors, upon whom the Debtor's operations depend;
(c) manage the Houston terminal operations, which generate the majority of the Debtor's revenue and which are pledged as collateral under the $685 million Senior Secured Credit Facility; and
(d) coordinate with TSL's global operations through the established intercompany transaction framework, the disruption of which would cripple the Debtor's ability to schedule vessels, allocate cargo, and service its U.S. customer base.
Each of these consequences would cause immediate and irreparable harm to the Debtor's estate, its employees, its creditors, and the prospects for a successful reorganization. The Debtor therefore respectfully submits that interim relief is warranted.
VIII. WAIVER OF BANKRUPTCY RULES 6004(a) AND 6004(h)
The Debtor respectfully requests a waiver of the fourteen (14) day stay imposed by Bankruptcy Rule 6004(h), which provides that "[a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise." Fed. R. Bankr. P. 6004(h). The Debtor submits that cause exists to waive this stay because the Cash Management System must continue to operate without interruption from the moment of the bankruptcy filing, and any delay in the effectiveness of the order authorizing such continued operation would cause the very harm this Motion seeks to prevent.
The Debtor further requests a waiver of any notice requirements under Bankruptcy Rule 6004(a) that would otherwise apply to the relief sought in this Motion, to the extent not otherwise satisfied by the notice provided as described in Section IX below.
IX. NOTICE
Notice of this Motion has been provided to the following parties (or their counsel):
(a) The Office of the United States Trustee for the Southern District of Texas, 515 Rusk Street, Suite 3516, Houston, Texas 77002;
(b) Nordbank International AG, as administrative agent and collateral agent under the Credit Agreement, at Bahnhofstrasse 78, 8001 Zürich, Switzerland (Attn: Henrik Lüdemann, Managing Director — Restructuring);
(c) Whitfield, Crane & Burgess LLP, as counsel to the Ad Hoc Group of Senior Secured Lenders, at 51 West 52nd Street, 38th Floor, New York, New York 10019 (Attn: Graham Whitfield III, Esq.);
(d) Kellner & Foss LLP, as counsel to Dralvecen Mezzanine Capital LLC, at 1185 Avenue of the Americas, 30th Floor, New York, New York 10036 (Attn: Theodore Kellner, Esq.);
(e) Ashford, Brightmoor Group & McKay PC, as counsel to the informal group of unsecured noteholders, at 299 Park Avenue, 18th Floor, New York, New York 10171 (Attn: Carolyn Brightmoor Group, Esq.);
(f) Garrison Trust Company, as indenture trustee under the indenture governing the Unsecured Notes, at 100 Wall Street, 16th Floor, New York, New York 10005;
(g) The Debtor's thirty (30) largest unsecured creditors, as identified in the list filed contemporaneously with the Debtor's voluntary petition; and
(h) All parties that have filed a request for notice pursuant to Bankruptcy Rule 2002.
The Debtor submits that no further notice of this Motion is required under the Bankruptcy Code, the Bankruptcy Rules, or the Local Rules of this Court.
X. NO PRIOR REQUEST
No prior request for the relief sought in this Motion has been made to this or any other court.
XI. CONCLUSION AND PRAYER FOR RELIEF
WHEREFORE, the Debtor respectfully requests that the Court enter the proposed interim order, substantially in the form attached hereto as Exhibit A, and, following a final hearing on notice, the proposed final order, substantially in the form attached hereto as Exhibit B:
(a) Authorizing the Debtor to continue operating its existing Cash Management System, substantially in the manner described herein;
(b) Authorizing the Debtor to maintain its existing bank accounts at Gulf Maritime National Bank, N.A., including the Operating Account, Payroll Account, Tax Escrow Account, Vendor Disbursement Account, and Concentration Account;
(c) Authorizing the Debtor to continue using existing Business Forms, including checks, letterhead, purchase orders, invoices, and other business forms, for a sixty (60) day transition period, after which the Debtor shall use forms bearing the "Debtor-in-Possession" designation;
(d) Authorizing the Debtor to continue intercompany transactions with TSL and non-debtor affiliates in the ordinary course, subject to the Intercompany Safeguards described herein;
(e) Waiving the requirements of Bankruptcy Rules 6004(a) and 6004(h) to the extent applicable;
(f) Scheduling a final hearing on this Motion on at least twenty-one (21) days' notice; and
(g) Granting such other and further relief as the Court deems just and proper.
Dated: January 15, 2023 Houston, Texas
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Nathaniel Bower (admitted pro hac vice pending) Amy Chesterton (admitted pro hac vice pending) Nathan Ikeda (admitted pro hac vice pending) 780 Third Avenue New York, New York 10017 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 nathaniel.bower@calderwoodharkness.com amy.chesterton@calderwoodharkness.com nathan.ikeda@calderwoodharkness.com
Proposed Counsel to the Debtor and Debtor-in-Possession
C&H Matter No. 1044-00003
CERTIFICATE OF SERVICE
I, Amy Chesterton, hereby certify that on January 15, 2023, a true and correct copy of the foregoing Debtor's Motion for Entry of Interim and Final Orders (I) Authorizing the Debtor to Continue to Operate Its Existing Cash Management System, (II) Authorizing the Continued Use of Existing Bank Accounts and Business Forms, and (III) Authorizing the Continuation of Intercompany Transactions with Non-Debtor Affiliates and all exhibits thereto was served upon the following parties by electronic mail and first-class mail, postage prepaid:
1. Office of the United States Trustee for the Southern District of Texas, 515 Rusk Street, Suite 3516, Houston, Texas 77002;
2. Nordbank International AG (Attn: Henrik Lüdemann), Bahnhofstrasse 78, 8001 Zürich, Switzerland;
3. Whitfield, Crane & Burgess LLP (Attn: Graham Whitfield III, Esq.), 51 West 52nd Street, 38th Floor, New York, New York 10019;
4. Kellner & Foss LLP (Attn: Theodore Kellner, Esq.), 1185 Avenue of the Americas, 30th Floor, New York, New York 10036;
5. Ashford, Brightmoor Group & McKay PC (Attn: Carolyn Brightmoor Group, Esq.), 299 Park Avenue, 18th Floor, New York, New York 10171;
6. Garrison Trust Company, 100 Wall Street, 16th Floor, New York, New York 10005;
7. The Debtor's thirty (30) largest unsecured creditors; and
8. All parties that have filed a request for notice pursuant to Bankruptcy Rule 2002.
________________________________________
Amy Chesterton CALDERWOOD & HARKNESS LLP
EXHIBIT A
PROPOSED INTERIM ORDER
UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
In re:
THALASSA AMERICAS INC.,
Debtor.