DRAFT — PREPARED ON STANDBY BASIS — NOT FILED PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
In re:
THALASSA AMERICAS INC., a Delaware corporation,
Debtor.
Chapter 11
Case No. ____ (to be assigned)
DEBTOR'S MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS AUTHORIZING, BUT NOT DIRECTING, THE DEBTOR TO PAY CERTAIN PREPETITION CLAIMS OF CRITICAL VENDORS PURSUANT TO 11 U.S.C. §§ 105(a) AND 363(b)
January 16, 2023
Thalassa Americas Inc. ("TAI" or the "Debtor"), the above-captioned debtor and debtor in possession, by and through its proposed counsel, Calderwood & Harkness LLP, hereby moves this Court (the "Motion") for entry of an interim order (the "Interim Order") and a final order (the "Final Order," and together with the Interim Order, the "Orders"), substantially in the forms attached hereto as Exhibit A and Exhibit B, respectively, authorizing, but not directing, the Debtor to pay certain prepetition claims of critical vendors (the "Critical Vendors") in an aggregate amount not to exceed $__ million (the "Critical Vendor Cap"), pursuant to Sections 105(a) and 363(b) of title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (the "Bankruptcy Code"). In support of this Motion, the Debtor respectfully states as follows:
I. PRELIMINARY STATEMENT
1. 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, respectfully moves this Court for entry of interim and final orders authorizing, but not directing, the Debtor to pay certain prepetition claims of Critical Vendors in an aggregate amount not to exceed $__ million (the "Critical Vendor Cap"). The proposed Interim Order and Final Order are attached hereto as Exhibit A and Exhibit B, respectively.
2. TAI's principal office is located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010. TAI's registered agent in the State of Delaware is Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801. TAI's Employer Identification Number is 84-3291057.
3. TAI operates the United States-side operations of the TSL shipping and logistics conglomerate, including Houston terminal operations, Jones Act–exempt foreign-flag vessel scheduling, and domestic freight brokerage. TAI generated estimated revenues of approximately $198 million for the fiscal year ending December 31, 2022 ("FY2022"), and employs approximately 680 people in the United States across its Houston terminal facility, its vessel operations and scheduling offices, and its domestic freight brokerage operations.
4. The Debtor's business depends on the continued, uninterrupted supply of goods and services from a limited number of Critical Vendors who provide essential bunker fuel, marine supplies, vessel maintenance services, terminal services, freight brokerage support, and logistics support. Without the continued and uninterrupted supply of such goods and services, the Debtor's operations would cease or be materially impaired, resulting in the loss of going-concern value, the termination of essential revenue streams, the potential grounding of vessels, and the idling of the Debtor's Houston terminal facility.
5. As of the anticipated petition date (the "Petition Date"), the Debtor estimates that its total outstanding trade payables are approximately $38.7 million. The Debtor does not seek authority to pay all prepetition trade claims. Rather, the Debtor seeks authority to pay only those prepetition claims of Critical Vendors whose continued supply is essential to the preservation of the Debtor's estate and going-concern value. The Debtor has undertaken a rigorous, vendor-by-vendor analysis, in consultation with its management team and its financial advisor, Kensington Veltrian Partners LLC, to identify those vendors whose goods and services are truly critical and for which adequate substitutes are not readily available.
6. The relief requested herein is supported by the "necessity of payment" doctrine (also known as the "doctrine of necessity"), which is codified in and authorized by Section 105(a) of the Bankruptcy Code, and by Section 363(b) of the Bankruptcy Code, and is consistent with the practices of this Court and courts within the Fifth Circuit. The doctrine recognizes that in certain circumstances, the payment of prepetition claims is necessary to preserve the estate as a going concern for the benefit of all stakeholders, including creditors, employees, and the broader community of interest.
7. This Motion is supported by the Declaration of Marcus Hale, President of Thalassa Americas Inc., in Support of First-Day Motions (the "Hale Declaration"), filed concurrently herewith and incorporated herein by reference.
II. JURISDICTION AND VENUE
8. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the Southern District of Texas, dated October 16, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), and the Debtor confirms its consent, pursuant to Bankruptcy Rule 7008, to the entry of a final order or judgment by this Court if it is determined that this Court, absent consent of the parties, would lack Article III jurisdiction to enter such final order or judgment.
9. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409, as the Debtor's principal place of business has been located in Houston, Texas, within the Southern District of Texas, for the 180-day period immediately preceding the commencement of this case.
10. The statutory predicates for the relief requested herein are Sections 105(a), 363(b), and 503(b)(9) of the Bankruptcy Code, as well as Bankruptcy Rules 6003 and 6004.
III. BACKGROUND
A. General Corporate Background
11. TSL was founded in 1987 by the Kostandinos family and is headquartered at 42 Akti Miaouli, Piraeus 18538, Greece. TSL is one of the largest privately held shipping and logistics enterprises in the eastern Mediterranean region, providing integrated port-to-door logistics services across the Mediterranean, Black Sea, and transatlantic trade lanes. TSL owns and operates a fleet of fifty (50) vessels: thirty-eight (38) dry-bulk carriers, comprising ten (10) Capesize vessels, fourteen (14) Panamax vessels, and fourteen (14) Supramax vessels, and twelve (12) container vessels of Sub-Panamax classification. TSL operates terminal facilities at Piraeus, Greece; Thessaloniki, Greece; and Houston, Texas, and employs approximately 4,200 persons globally, including shore-side personnel and seafarers.
12. TAI is the wholly-owned U.S. subsidiary of TSL, organized and existing as a C-corporation under the laws of the State of Delaware. TAI's certificate of incorporation was filed with the Delaware Secretary of State on March 12, 2012. TAI conducts the U.S.-side operations of the TSL enterprise, including: (a) Houston terminal operations at the Debtor's dedicated terminal facility located within the Port of Houston complex, through which the Debtor handles the loading, discharge, and transshipment of dry-bulk and containerized cargo; (b) vessel scheduling for TSL's foreign-flag vessels calling at U.S. and Caribbean ports, including coordination with the United States Coast Guard, U.S. Customs and Border Protection, and port state control authorities; and (c) domestic freight brokerage, pursuant to which TAI arranges inland transportation of cargo originating from or destined to TSL's vessels by truck and rail. TAI generated revenues of approximately $312 million for the fiscal year ending December 31, 2021 ("FY2021"), and an estimated $198 million for FY2022, representing a decline of approximately 36.5% year-over-year.
13. TAI's current officers are as follows:
(a) Marcus Hale, President;
(b) Diana Restrepo, Vice President of Finance; and
(c) Jonathan Kurtz, Vice President of Operations.
14. TSL's equity is held as follows: sixty-two percent (62%) by Dimitrios Kostandinos, Chairman of the Board of Directors of TSL, and eighteen percent (18%) by Elena Kostandinos-Pavlou, Vice Chairwoman of the Board of Directors of TSL, in each case through KFO Holdings Société Anonyme, a Greek holding company, for a combined Kostandinos family ownership stake of eighty percent (80%). The remaining twenty percent (20%) of TSL's equity is held by a combination of senior management and long-term investors. TSL is not publicly traded, and its equity interests are not listed on any stock exchange.
B. Capital Structure
15. The following is a summary of the material components of the Debtor's and TSL's capital structure as of September 30, 2022, the most recent date for which complete financial information is available.
(i) Senior Secured Credit Facility.
16. TSL (as primary borrower) and TAI (as co-borrower with respect to the U.S. Tranche Term Loan B described below) are parties to that certain Senior Secured Credit Agreement, originally dated as of June 15, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement"), among TSL, TAI, Nordbank International AG, as Administrative Agent and Collateral Agent (in such capacity, the "Agent"), and a syndicate of nine (9) institutional lenders (collectively, the "Senior Secured Lenders"). The Senior Credit Agreement provides for a total commitment of $685 million, comprising the following tranches:
(a) Term Loan A ("TLA"): An amortizing term loan in the original principal amount of $400 million, amortizing at $10 million per quarter. As of September 30, 2022, following thirteen (13) quarterly amortization payments totaling $130 million, the outstanding principal balance of TLA was $270 million. CUSIP: 87265BAA7.
(b) Revolving Credit Facility ("Revolver"): A revolving credit facility with a total commitment of $200 million. As of September 30, 2022, the Revolver was drawn to $185 million, with $15 million of undrawn and available capacity.
(c) U.S. Tranche Term Loan B ("TLB"): A non-amortizing bullet term loan in the original and outstanding principal amount of $85 million, for which TAI is a co-borrower. The TLB was funded to TAI to support the Debtor's Houston terminal operations and U.S. working capital needs.
17. As of September 30, 2022, the aggregate outstanding principal amount under the Senior Credit Agreement was $540 million (comprising $270 million under TLA, $185 million under the Revolver, and $85 million under TLB). 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 applicable upon the occurrence and during the continuance of an event of default. The Senior Credit Agreement matures on June 15, 2024.
18. Obligations under the Senior Credit Agreement are secured by first-priority liens and security interests in substantially all assets of TSL and its subsidiaries, including: (a) all fifty (50) vessels owned by TSL's vessel-owning special purpose vehicles; (b) the Houston terminal lease and related leasehold improvements; (c) all accounts receivable of TSL and its subsidiaries (including TAI); and (d) the equity interests in TAI and fourteen (14) vessel-owning special purpose vehicles.
19. The syndicate of Senior Secured Lenders under the Senior Credit Agreement, and their respective approximate commitments as of September 30, 2022, are as follows:
(ii) Mezzanine Notes.
20. TSL is the issuer of certain subordinated mezzanine notes (the "Mezzanine Notes") held by Dralvecen Mezzanine Capital LLC ("BMC"), with an outstanding principal balance of $112.3 million as of September 30, 2022. The Mezzanine Notes were originally issued in the principal amount of $100 million, with $12.3 million of payment-in-kind ("PIK") capitalized interest accrued as of September 30, 2022. The Mezzanine Notes bear interest at a rate of 11.5% per annum on a PIK toggle basis; TSL has elected to toggle all interest payments to PIK since the second quarter of 2022. The Mezzanine Notes mature on December 15, 2024, and are secured by second-priority liens on the same collateral securing the Senior Credit Agreement, subject to the terms and conditions of that certain Intercreditor Agreement, dated as of June 15, 2019, by and between Nordbank International AG (as first-lien collateral agent) and BMC (as second-lien noteholder) (the "Intercreditor Agreement").
(iii) Unsecured Notes.
21. TSL is the issuer of $50 million in aggregate principal amount of 8.25% Senior Unsecured Notes due March 1, 2025 (the "Unsecured Notes," and together with the Senior Credit Agreement and the Mezzanine Notes, the "Funded Debt"). The Unsecured Notes bear interest at a fixed rate of 8.25% per annum, payable semi-annually in cash on March 1 and September 1 of each year. The CUSIP number for the Unsecured Notes is 87265BAB5. Garrison Trust Company, located at 100 Wall Street, 16th Floor, New York, New York 10005, serves as indenture trustee under the indenture governing the Unsecured Notes (the "Unsecured Indenture").
(iv) Intercompany Note.
22. TAI is the obligor under a subordinated intercompany promissory note (the "Intercompany Note") in the principal amount of $76.4 million payable to TSL. The Intercompany Note bears interest at a rate of 5.0% per annum. The Intercompany Note is subordinated in right of payment to all other indebtedness of TAI, including the Senior Credit Agreement and the Mezzanine Notes.
(v) Trade Payables.
23. As of September 30, 2022, TAI's outstanding trade payables were approximately $38.7 million, owed to a diverse group of vendors and service providers across the categories described more fully in Section VI below.
(vi) Total Debt Summary.
24. The following table summarizes the Debtor's and TSL's aggregate indebtedness as of September 30, 2022:
C. Events Leading to This Case
25. The global shipping industry has experienced a severe downturn in dry-bulk freight rates during 2022. The Baltic Dry Index ("BDI"), a widely followed benchmark for the cost of shipping commodities by sea, declined approximately 58% between January 2022 and September 2022, reflecting weakened global demand for raw materials, reduced Chinese steel production, and excess vessel tonnage entering the market. This precipitous decline in freight rates has had a direct and material adverse effect on TSL's revenue and profitability.
26. TSL's average daily time-charter equivalent ("TCE") rate — a key measure of vessel earnings — fell from $24,800 per day (FY2021 average) to $11,200 per day (Q3 2022 average), representing a decline of approximately 54.8%. This decline has resulted in corresponding decreases in both TSL's consolidated revenue and TAI's U.S. revenue.
27. Fleet asset values have also deteriorated significantly. According to an independent appraisal performed by Drakos Maritime Valuations Ltd., a respected London-based ship valuation firm, the aggregate fair market value of TSL's fifty-vessel fleet declined from $891 million as of January 2022 to $623 million as of November 1, 2022, a decline of $268 million, or approximately 30.1%. The decline in vessel values has had a direct impact on TSL's loan-to-value ratios and its ability to service and refinance its indebtedness.
28. TSL's consolidated revenue declined approximately 30.5%, from €1.42 billion in FY2021 to an estimated €987 million in FY2022. TAI's revenue declined from $312 million in FY2021 to an estimated $198 million in FY2022, a decline of approximately 36.5%.
29. As a direct consequence of these market conditions, TSL breached multiple financial covenants under the Senior Credit Agreement during the third and fourth quarters of 2022:
(a) Minimum Liquidity Covenant Breach (September 15, 2022). The Senior Credit Agreement requires TSL to maintain a minimum of $40 million in unrestricted cash and cash equivalents at all times (the "Minimum Liquidity Covenant"). On September 15, 2022, TSL's unrestricted liquidity fell to $27.3 million, representing a shortfall of $12.7 million below the required minimum. This breach constituted an immediate event of default under the Senior Credit Agreement.
(b) Maximum Net Leverage Ratio Breach (September 30, 2022). The Senior Credit Agreement requires TSL to maintain a Maximum Net Leverage Ratio of no greater than 5.50 to 1.00 (the "Net Leverage Covenant"). As of September 30, 2022, TSL's Net Leverage Ratio was 7.82x, calculated as Net Debt of $770.9 million divided by Last Twelve Months ("LTM") EBITDA of $98.6 million, exceeding the covenant maximum by 2.32x.
(c) Minimum Interest Coverage Ratio Breach (September 30, 2022). The Senior Credit Agreement requires TSL to maintain a Minimum Interest Coverage Ratio of no less than 2.50 to 1.00 (the "Interest Coverage Covenant"). As of September 30, 2022, TSL's Interest Coverage Ratio was 1.74x, calculated as LTM EBITDA of $98.6 million divided by LTM Interest Expense of $56.7 million, falling short of the covenant minimum by 0.76x.
30. On October 10, 2022, TSL, TAI, and the Senior Secured Lenders executed a Forbearance Agreement (the "Forbearance Agreement"), pursuant to which the Senior Secured Lenders agreed to a ninety (90)-day standstill with respect to the exercise of remedies arising from the foregoing covenant defaults, running through January 8, 2023. The Forbearance Agreement was subsequently extended on two occasions: first, to March 8, 2023, and second, to April 7, 2023.
31. On December 1, 2022, TSL failed to make the semi-annual interest payment of $2,062,500 on the Unsecured Notes ($50 million × 8.25% ÷ 2 = $2,062,500) that was due on that date. The Unsecured Indenture provides for a thirty (30)-day cure period following a missed interest payment, which expired on January 1, 2023, without payment having been made. This missed payment constitutes an event of default under the Unsecured Indenture.
32. In connection with the Debtor's restructuring efforts, Kensington Veltrian Partners LLC ("KHP"), the Debtor's financial advisor, has estimated the enterprise value of TSL and its subsidiaries (including TAI) at between $580 million and $640 million (midpoint: $610 million). This enterprise value estimate, which was prepared as of December 2022 using a combination of discounted cash flow, comparable company, and comparable transaction methodologies, suggests significant impairment of the Senior Secured Lenders' collateral position and indicates that the Mezzanine Notes, Unsecured Notes, Intercompany Note, and general unsecured claims are substantially, if not entirely, out of the money.
33. Notwithstanding the Debtor's ongoing pursuit of an out-of-court restructuring — including active negotiations with the Ad Hoc Group of Senior Secured Lenders, BMC, and the informal group of unsecured noteholders — this Chapter 11 filing has been prepared on a contingency basis to preserve all options available to the Debtor and its stakeholders. On December 15, 2022, the Debtor received a term sheet from Nordbank International AG and Triton Credit Partners LP for a proposed $75 million superpriority debtor-in-possession financing facility (the "DIP Facility") at an interest rate of SOFR + 600 basis points, which, if approved by the Court, would provide the Debtor with sufficient liquidity to fund operations during the pendency of a Chapter 11 case.
D. The Debtor's Vendor Relationships
34. The Debtor relies on a network of specialized maritime suppliers, fuel providers, terminal service providers, vessel maintenance contractors, freight brokers, and logistics partners to conduct its day-to-day operations. The maritime industry is characterized by a high degree of specialization and geographic concentration, and many of the vendors upon which the Debtor depends are not readily replaceable.
35. Many of these vendors are sole-source or limited-source providers due to the highly specialized nature of marine operations, geographic constraints at and around the Port of Houston, regulatory requirements for foreign-flag vessel servicing, and the Debtor's specific operational requirements. In many instances, the Debtor's relationships with these vendors have been developed over years of cooperative dealings, and the vendors possess unique knowledge of the Debtor's fleet, terminal operations, and logistical needs that would be difficult and time-consuming to replicate with alternative providers.
36. The Debtor's largest trade creditor is Olympian Fuel & Supply SA ("Olympian F&S"), a bunker fuel supplier headquartered at 7 Iroon Polytechniou, Piraeus 18535, Greece, which is owed approximately $9.2 million as of the Petition Date. Olympian F&S has been the Debtor's primary bunker fuel provider since 2014 and is one of the few suppliers capable of meeting the Debtor's fueling requirements at Mediterranean and transatlantic ports, as well as at the Port of Houston.
37. Without continued supply from these Critical Vendors, the Debtor's Houston terminal operations, vessel scheduling, and freight brokerage business would be materially disrupted, causing irreparable harm to the estate, the Debtor's approximately 680 employees, the Debtor's ability to generate revenue, and the Debtor's prospects for a successful reorganization. The cessation of bunker fuel supply alone would result in the grounding of the Debtor's vessels, which would in turn eliminate the principal source of cargo for the Houston terminal and destroy the value of the Debtor's freight brokerage operations.
IV. RELIEF REQUESTED
38. By this Motion, the Debtor requests entry of the Interim Order and the Final Order authorizing, but not directing, the Debtor to pay the prepetition claims of Critical Vendors in an aggregate amount not to exceed $__ million (the "Critical Vendor Cap"), subject to the terms and conditions set forth herein and in the proposed Orders.
39. The Debtor seeks authority to pay such claims in the ordinary course of business, provided that each Critical Vendor whose prepetition claims are paid agrees to continue supplying goods and services to the Debtor on terms at least as favorable to the Debtor as those in effect during the twelve (12)-month period prior to the Petition Date (the "Customary Trade Terms"), including with respect to pricing, payment terms, credit limits, availability, and service quality.
40. The Debtor further requests that, as a condition of payment, each Critical Vendor be required to execute a trade agreement (a "Critical Vendor Agreement") or otherwise provide written confirmation of its agreement to continue supply on Customary Trade Terms for the duration of the Chapter 11 case. The form of Critical Vendor Agreement will be provided to the U.S. Trustee and any official committee of unsecured creditors appointed in this case for review.
41. In the event a Critical Vendor accepts payment of its prepetition claim under the authority of this Motion and the Orders entered hereon and thereafter refuses to continue supplying the Debtor on Customary Trade Terms, the Debtor requests authority to: (a) recover such payment from the non-complying Critical Vendor; or (b) treat the payment as a postpetition advance, thereby giving rise to an administrative expense claim in favor of the Debtor's estate offsetting any preference recovery to which the vendor might otherwise be entitled.
42. The Debtor also requests that the Court authorize the Debtor's banks and financial institutions to receive, process, honor, and pay all checks, wire transfers, electronic fund transfers, and other payment instructions made by the Debtor consistent with the Orders entered on this Motion, and that such banks and financial institutions be entitled to rely on the representations of the Debtor as to which payments are authorized hereunder without any duty of further inquiry.
V. BASIS FOR RELIEF
A. The Necessity of Payment Doctrine — 11 U.S.C. § 105(a)
43. Section 105(a) of the Bankruptcy Code provides that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). This broad grant of equitable authority has long been interpreted to empower bankruptcy courts to authorize the payment of certain prepetition claims where such payment is essential to the continued operation of the debtor's business and the preservation of estate value for the benefit of all creditors.
44. The "necessity of payment" doctrine — also referred to as the "doctrine of necessity" — permits a debtor in possession to pay certain prepetition claims where failure to do so would cause the debtor's business to collapse or suffer disproportionate harm, to the detriment of all creditors and parties in interest. The doctrine finds its origins in the railroad receivership cases of the nineteenth century, where courts recognized that the failure to pay certain critical prepetition claims — particularly claims of railroad workers and suppliers of coal and rolling stock — could cause the cessation of railroad operations, thereby destroying the value of the estate for all stakeholders. See Miltenberger v. Logansport, C. & S.W.R. Co., 106 U.S. 286 (1882); Fosdick v. Schall, 99 U.S. 235 (1878).
45. The doctrine has been consistently applied by courts in the Fifth Circuit and by this Court. Courts applying the doctrine have identified the following factors as relevant to the determination of whether prepetition payment is warranted:
(a) Whether the vendor provides goods or services that are essential to the debtor's ongoing operations and the preservation of going-concern value;
(b) Whether the vendor is a sole-source or limited-source provider, such that the debtor cannot readily obtain substitute goods or services from alternative sources;
(c) Whether the vendor has indicated — or, in light of the circumstances, is likely to indicate — that it will cease or curtail supply absent payment of prepetition amounts, particularly where the vendor has no ongoing contractual obligation to continue supply or where existing contracts permit termination upon the commencement of a bankruptcy case;
(d) Whether the disruption to the debtor's business that would result from the loss of the vendor's supply would cause harm disproportionate to the amount of the vendor's prepetition claim, taking into account the potential cascading effects of supply chain disruption on the debtor's operations as a whole; and
(e) Whether payment of the vendor's prepetition claim will preserve estate value for the benefit of all creditors, rather than merely providing a preference to the paid vendor.
46. The Debtor respectfully submits that each of these factors weighs in favor of the relief requested herein. As described more fully in Section VI below, the Critical Vendors identified by the Debtor provide goods and services that are indispensable to the Debtor's Houston terminal operations, vessel scheduling, and freight brokerage business. Many of these vendors are sole-source or limited-source providers, and the cost of transitioning to alternative providers — to the extent alternatives exist at all — would significantly exceed the cost of paying the Critical Vendors' prepetition claims. Moreover, several Critical Vendors have indicated, either directly or through informal communications with the Debtor's management, that they will cease or curtail supply if their prepetition claims are not addressed promptly following the commencement of this case.
47. Payment of Critical Vendor claims is not merely for the benefit of the Critical Vendors themselves. Rather, such payment is necessary to preserve the Debtor's ability to operate as a going concern, thereby maximizing the value of the estate for the benefit of all creditors — secured, priority, and general unsecured alike. The alternative — cessation of supply from Critical Vendors — would result in the grounding of vessels, the idling of the Houston terminal, the termination of freight brokerage operations, the loss of the Debtor's approximately 680 employees, and the destruction of the enterprise value that the Debtor's stakeholders are seeking to preserve through this restructuring process.
B. Authorization Under 11 U.S.C. § 363(b)
48. Section 363(b)(1) of the Bankruptcy Code provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1). Courts have routinely authorized payments to critical vendors under Section 363(b) where the debtor demonstrates a sound business justification for such payments. See In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (authorizing payment of prepetition claims of fuel suppliers, caterers, and other essential vendors where necessary to continue airline operations); see also In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002).
49. The business judgment standard applies to requests under Section 363(b). Under this standard, a court should approve a debtor's proposed use of estate property so long as the debtor has articulated a sound business justification and the proposed action is not the product of bad faith. In re Continental Air Lines, Inc., 780 F.2d 1223, 1226 (5th Cir. 1986).
50. The Debtor submits that a sound business justification exists for the payments sought herein. Specifically:
(a) The continued operation of the Debtor's Houston terminal and vessel scheduling operations depends on the uninterrupted supply of bunker fuel, marine supplies, terminal services, vessel maintenance, and logistics support from the Critical Vendors.
(b) The loss of critical supply chains would imperil the Debtor's ability to generate revenue, meet its postpetition obligations, and comply with the milestones and operating covenants that are expected to be contained in any debtor-in-possession financing facility. The proposed DIP Facility term sheet received from Nordbank International AG and Triton Credit Partners LP on December 15, 2022, contemplates that the Debtor will maintain its existing vendor relationships and continue operations at or near current levels.
(c) The cost of replacing Critical Vendors — to the extent replacements are available — significantly exceeds the cost of paying their prepetition claims. In many cases, the transition to an alternative vendor would require weeks or months, during which time the Debtor's operations would be impaired or halted entirely. The resulting loss of revenue and destruction of going-concern value would far exceed the aggregate amount of Critical Vendor claims.
(d) Payment of Critical Vendor claims preserves going-concern value for the benefit of the entire estate. The Debtor's enterprise value, estimated by KHP at $580 million to $640 million (midpoint: $610 million), is dependent on the Debtor's continued operations. Any diminution in operating capacity will result in a corresponding diminution in enterprise value, to the detriment of all creditors.
C. Section 503(b)(9) Administrative Priority Claims
51. Section 503(b)(9) of the Bankruptcy Code provides for allowance as an administrative expense the "value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor's business." 11 U.S.C. § 503(b)(9).
52. A portion of the prepetition claims of certain Critical Vendors may qualify as Section 503(b)(9) administrative expense claims. To the extent such claims would ultimately receive administrative priority treatment, the prepetition payment sought herein serves the interests of administrative convenience and reduces the costs associated with claims reconciliation, litigation, and the potential for disputes over the scope and valuation of Section 503(b)(9) claims.
53. The Debtor, in consultation with KHP and its management team, has undertaken a preliminary analysis of which Critical Vendor claims may include a Section 503(b)(9) component, focusing on goods delivered to the Debtor within the twenty (20)-day window immediately preceding the anticipated Petition Date. This analysis is ongoing and will be updated as the Petition Date is finalized. The Debtor anticipates that a significant portion of the bunker fuel deliveries from Olympian F&S and certain marine supply deliveries from other Critical Vendors may fall within the Section 503(b)(9) window. To the extent Critical Vendors are paid under this Motion, each Critical Vendor will be required, as a condition of payment, to waive any right to assert a separate administrative expense claim under Section 503(b)(9) for the same amounts.
VI. IDENTIFICATION OF CRITICAL VENDORS
A. Criteria for Designation as Critical Vendor
54. The Debtor, in consultation with its financial advisor, KHP (James Calloway, Managing Director), and its management team, including Mr. Hale (President), Ms. Restrepo (VP Finance), and Mr. Kurtz (VP Operations), has developed a rigorous set of criteria for identifying Critical Vendors. The Debtor has applied these criteria on a vendor-by-vendor basis to ensure that only those vendors whose continued supply is genuinely essential to the preservation of the estate — and for which no adequate substitute is readily available — are designated as Critical Vendors. The criteria include:
1. Whether the vendor is a sole-source or limited-source provider of essential goods or services, such that the Debtor cannot obtain adequate substitutes from alternative vendors in the relevant market;
2. Whether the vendor's goods or services are necessary to maintain the Debtor's Houston terminal operations, vessel scheduling, or freight brokerage, or are otherwise essential to the Debtor's revenue-generating capacity;
3. Whether alternative vendors are available and, if so, the cost and time required to transition to such alternative vendors, including the risk of operational disruption during the transition period;
4. Whether the vendor has indicated (or is likely to indicate, based on the Debtor's management's assessment of the vendor's creditworthiness analysis, historical behavior, and industry practice) that it will cease or curtail supply absent payment of prepetition amounts;
5. The magnitude of harm to the estate if supply from the vendor is disrupted, including the potential for cascading effects on the Debtor's operations, revenue, and enterprise value; and
6. Whether the vendor's prepetition claim includes a potential Section 503(b)(9) component, such that payment may also serve administrative convenience by resolving a potential administrative expense claim.
55. The Debtor's management team, with the assistance of KHP, has reviewed the Debtor's vendor master file, accounts payable aging reports, purchase order records, and contractual documentation to apply the foregoing criteria. The designation of each Critical Vendor has been approved by Mr. Hale, in his capacity as President of TAI.
B. Categories of Critical Vendors
56. Based on the analysis described above, the Debtor has identified the following categories of Critical Vendors:
(i) Bunker Fuel Suppliers.
57. The Debtor's vessels require bunker fuel (marine fuel oil and marine gasoil) to operate. Without a reliable supply of bunker fuel, the Debtor's vessels cannot sail, and the Debtor's entire shipping and logistics operation grinds to a halt. The Debtor's primary bunker fuel supplier is Olympian Fuel & Supply SA ("Olympian F&S"), which is owed approximately $9.2 million as of the anticipated Petition Date. Olympian F&S is one of the few bunker fuel suppliers capable of meeting the Debtor's fueling requirements at Mediterranean and transatlantic ports, as well as at the Port of Houston. The Debtor has a long-standing relationship with Olympian F&S dating back to 2014, and Olympian F&S possesses unique knowledge of the Debtor's fleet fueling schedules, vessel specifications, and operational requirements. Loss of Olympian F&S's supply would immediately ground certain of the Debtor's vessels and cause severe disruption to the Debtor's sailing schedules and cargo commitments.
58. The Debtor has also identified one or two additional bunker fuel suppliers whose continued supply may be critical in specific geographic regions or for specific vessel classes. The aggregate prepetition claims of bunker fuel suppliers identified as Critical Vendors are approximately $__ million.
(ii) Marine Supplies and Spare Parts Providers.
59. Specialized vendors provide vessel maintenance supplies, spare parts, lubricants, paints, ropes, safety equipment, and other consumables essential to maintaining vessel seaworthiness and compliance with the requirements of applicable classification societies (including Meridian Industries, Bureau Veritas, and the American Bureau of Shipping) and the United States Coast Guard. The Debtor estimates that the aggregate prepetition claims of marine supply vendors identified as Critical Vendors are approximately $__ million.
(iii) Terminal Service Providers.
60. The Debtor's Houston terminal facility depends on a small number of specialized vendors that provide stevedoring, crane operation, and other cargo-handling services. These vendors employ trained longshoremen and operate specialized heavy-lift equipment that is essential to the loading, discharge, and transshipment of dry-bulk and containerized cargo at the terminal. Without these terminal service providers, the Debtor's Houston terminal cannot process cargo, and the Debtor's customers will be forced to divert cargo to competing terminals, resulting in the loss of revenue and customer relationships that may be impossible to recover. The aggregate prepetition claims of terminal service providers identified as Critical Vendors are approximately $__ million.
(iv) Vessel Maintenance and Drydock Contractors.
61. Providers of scheduled and emergency vessel repair and maintenance services, including drydocking, hull cleaning, engine overhaul, ballast water treatment system servicing, and other maintenance services necessary to keep the fleet operational and in compliance with classification society and regulatory requirements. The Debtor's vessels are subject to periodic classification surveys, and the failure to maintain classification can result in the withdrawal of the vessel's class, which would render the vessel uninsurable and unable to trade. The aggregate prepetition claims of vessel maintenance and drydock contractors identified as Critical Vendors are approximately $__ million.
(v) Freight Brokerage and Logistics Partners.
62. TAI's domestic freight brokerage operations depend on a network of trucking companies, rail carriers, and logistics partners that provide inland transportation services for cargo originating from or destined to TSL's vessels. These partners are essential to TAI's ability to provide the port-to-door logistics services that differentiate TSL from its competitors and generate a significant portion of TAI's revenue. The aggregate prepetition claims of freight brokerage and logistics partners identified as Critical Vendors are approximately $__ million.
(vi) Insurance and Classification Society Services.
63. The Debtor's vessels must maintain Protection & Indemnity ("P&I") coverage, hull and machinery insurance, and classification society certifications in order to trade. The Debtor's P&I and hull and machinery insurance is arranged through Seaward & Beckett Insurance Brokers Ltd., located at 71 Fenchurch Street, London EC3M 4BS, United Kingdom. Classification society certifications are maintained through Meridian Industries and Bureau Veritas. The loss of insurance coverage or classification certifications would render the Debtor's vessels unable to trade and would constitute an event of default under the Senior Credit Agreement. The aggregate prepetition claims of insurance and classification society service providers identified as Critical Vendors are approximately $__ million.
(vii) Technology and IT Service Providers.
64. The Debtor relies on specialized technology vendors for fleet management software, vessel tracking and communications systems, port management and terminal operating systems, and enterprise resource planning software. These systems are integral to the Debtor's day-to-day operations, and the loss of any critical technology platform could impair the Debtor's ability to schedule vessels, manage terminal operations, and process customer orders. The aggregate prepetition claims of technology and IT service providers identified as Critical Vendors are approximately $__ million.
C. Estimated Amounts
65. The Debtor estimates that the total prepetition claims of Critical Vendors subject to this Motion are approximately $__ million, broken down by category as follows:
66. Total trade payables outstanding as of the Petition Date are approximately $38.7 million. The Critical Vendor Cap of $__ million represents approximately __% of total trade payables. The Debtor has carefully limited the scope of Critical Vendor designations to those vendors whose continued supply is genuinely essential and for which no adequate substitute is readily available, in order to minimize the impact on general unsecured creditors and ensure that the relief sought herein is narrowly tailored to its purpose.
67. The Debtor will continue to refine the list of Critical Vendors and the estimated amounts as additional information becomes available. Any changes to the list of Critical Vendors or the estimated amounts will be disclosed to the U.S. Trustee and any official committee of unsecured creditors appointed in this case.
VII. PROPOSED PROCEDURES
A. Critical Vendor Agreements
68. As a condition to receiving payment of prepetition claims under this Motion, each Critical Vendor will be required to execute a Critical Vendor Agreement or provide written confirmation, in a form satisfactory to the Debtor, that it will:
1. Continue to supply goods and/or services to the Debtor on Customary Trade Terms for the duration of the Chapter 11 case, including with respect to pricing, payment terms, credit limits, availability, and service quality;
2. Not discriminate against the Debtor in any way — whether with respect to pricing, availability, service quality, delivery schedules, payment terms, or otherwise — on account of the Debtor's Chapter 11 filing or any prepetition amounts owed;
3. Accept the prepetition payment in full satisfaction of its prepetition claim (including any claim or portion thereof that might otherwise qualify as an administrative expense claim under Section 503(b)(9) of the Bankruptcy Code, to the extent such amounts have been paid) and waive any right to assert a duplicative administrative expense claim for the same amounts; and
4. Acknowledge that failure to comply with the terms of the Critical Vendor Agreement may result in the Debtor's right to seek disgorgement of the prepetition payment and/or other relief as authorized by the Orders entered on this Motion.
69. The Debtor anticipates that the form of Critical Vendor Agreement will be a short-form letter agreement, signed by an authorized representative of the Critical Vendor, confirming the foregoing terms. The Debtor will make the form of Critical Vendor Agreement available to the U.S. Trustee and any official committee of unsecured creditors for review, and will consider in good faith any comments or objections to the form of agreement.
B. Disgorgement and Claw-Back Mechanism
70. If a Critical Vendor accepts payment under this Motion and the Orders entered hereon and subsequently fails to continue supplying the Debtor on Customary Trade Terms — whether by refusing to accept new orders, demanding materially different terms, reducing the quality or availability of goods or services, or otherwise breaching the terms of the Critical Vendor Agreement — the Debtor shall be authorized to: (a) seek recovery of the payment from such vendor through disgorgement or other equitable relief; or (b) treat the payment as a postpetition advance, creating an administrative expense claim in favor of the Debtor's estate against such vendor, which may be offset against any amounts otherwise owed to the vendor.
71. The Debtor requests that the Court retain jurisdiction to hear and determine any disputes arising under the Critical Vendor Agreements or the terms of the Orders entered on this Motion, including disputes regarding whether a Critical Vendor has complied with its obligations and whether disgorgement or other relief is appropriate.
C. Reporting and Oversight
72. The Debtor recognizes the importance of transparency and oversight in connection with the payment of prepetition claims to Critical Vendors. Accordingly, the Debtor will:
(a) Maintain accurate and complete records of all payments made to Critical Vendors under this Motion, including the date, amount, and recipient of each payment;
(b) Provide periodic reports to the U.S. Trustee for the Southern District of Texas and any official committee of unsecured creditors appointed in this case, at such intervals as may be agreed upon with the U.S. Trustee or ordered by this Court, detailing the cumulative amount paid to each Critical Vendor, the remaining balance of the Critical Vendor Cap (and the Interim Cap, as applicable), and the vendor's compliance with the terms of its Critical Vendor Agreement; and
(c) Refrain from paying any Critical Vendor claim in excess of the amounts reflected on the Debtor's books and records for such claim without further order of the Court.
73. The Debtor believes that these reporting and oversight procedures will provide adequate protection to the interests of all parties and will ensure that the relief authorized by this Motion is implemented in a transparent and responsible manner.
VIII. THE REQUIREMENTS FOR INTERIM RELIEF ARE SATISFIED
74. The Debtor requests that the relief sought herein be granted on an interim basis, pursuant to Bankruptcy Rule 6003, to the extent of $__ million (the "Interim Cap"), pending a final hearing on this Motion. Bankruptcy Rule 6003 provides that, within the first twenty-one (21) days following the commencement of a case, relief may be granted if "the relief is necessary to avoid immediate and irreparable harm." Fed. R. Bankr. P. 6003(b).
75. The Debtor respectfully submits that the failure to authorize interim payments to Critical Vendors would cause immediate and irreparable harm to the Debtor's estate, its employees, and its stakeholders, for the following reasons:
(a) Many Critical Vendors will require assurance of payment within the first days of the Chapter 11 case in order to continue supplying the Debtor. The maritime industry operates on tight credit terms, and many of the Debtor's suppliers — particularly bunker fuel suppliers — have the practical ability to cease supply on short notice if payment is not assured.
(b) Certain vendors, particularly Olympian F&S and other bunker fuel suppliers, as well as terminal service providers, have indicated through informal communications with the Debtor's management that they may refuse to continue providing goods and services absent prompt payment of their prepetition claims. The Debtor's management team, based on years of experience in the maritime industry and with these specific vendors, believes that these indications are credible and that the risk of supply disruption is real and imminent.
(c) The Debtor's operations could be materially disrupted within days of the Petition Date if Critical Vendors cease supply. The grounding of even a single vessel due to lack of bunker fuel would result in the loss of charter revenue, cargo commitments, and customer confidence. The idling of the Houston terminal due to the loss of stevedoring services would eliminate a principal source of revenue and cause the Debtor to breach contractual commitments to cargo interests.
(d) Disruption of the Debtor's operations in the early days of the Chapter 11 case would undermine the Debtor's credibility with its lenders, its customers, and this Court, and would jeopardize the Debtor's ability to obtain approval of the proposed DIP Facility on the timeline contemplated by the DIP Facility term sheet.
76. The Debtor submits that the Interim Cap of $__ million is narrowly tailored to address the most urgent Critical Vendor payment needs during the first twenty-one (21) days of the case, and that the balance of the Critical Vendor Cap will be sought at the final hearing. The Debtor will prioritize interim payments to those Critical Vendors whose continued supply is most time-sensitive, including bunker fuel suppliers and terminal service providers.
IX. ADEQUATE PROTECTION AND SECURED CREDITOR INTERESTS
77. The relief sought herein will benefit the Senior Secured Lenders — including Nordbank International AG, as Administrative Agent and Collateral Agent, and the eight other members of the senior secured lending syndicate, holding an aggregate of $540 million in secured claims — by preserving the Debtor's going-concern value and the value of the Senior Secured Lenders' collateral.
78. The continued operation of the Debtor's business — which depends on the uninterrupted supply of goods and services from the Critical Vendors — is essential to maximizing the value of the Senior Secured Lenders' collateral package. As noted above, the fleet has been appraised at $623 million as of November 1, 2022, by Drakos Maritime Valuations Ltd. However, this valuation assumes that the vessels continue to trade and generate revenue. Idle vessels depreciate rapidly and incur significant costs for layup, storage, insurance, and maintenance. The Houston terminal lease and related leasehold improvements, which form part of the Senior Secured Lenders' collateral, are valuable only to the extent the terminal continues to operate. A cessation of operations would transform a revenue-generating terminal into a vacant facility, with a corresponding destruction of collateral value.
79. Similarly, the accounts receivable of TAI and its parent, which also form part of the Senior Secured Lenders' collateral, are generated by the Debtor's ongoing operations. If operations cease, no new receivables will be generated, and existing receivables may become uncollectible as customers dispute obligations to a non-performing counterparty.
80. The DIP Facility term sheet received on December 15, 2022, from Nordbank International AG and Triton Credit Partners LP — two members of the senior secured lending syndicate — contemplates that the Debtor will maintain its vendor relationships and continue operations at or near current levels. The proposed DIP Facility budget is premised on the assumption that Critical Vendor relationships will be preserved. The failure to pay Critical Vendors would undermine the assumptions on which the DIP Facility is predicated and could result in the withdrawal or renegotiation of the DIP commitment, leaving the Debtor without adequate postpetition liquidity.
81. Accordingly, the Debtor submits that the payment of Critical Vendor claims is not only consistent with the interests of the Senior Secured Lenders, but is essential to the protection of their collateral and the preservation of value for the benefit of all stakeholders.
X. NOTICE
82. Notice of this Motion and the proposed Orders has been provided, or will be provided prior to filing, to the following parties or their counsel:
(i) The United States Trustee for the Southern District of Texas, 515 Rusk Avenue, Suite 3516, Houston, Texas 77002;
(ii) Nordbank International AG, as Administrative Agent and Collateral Agent under the Senior Credit Agreement, Bahnhofstrasse 78, 8001 Zürich, Switzerland, Attn: Henrik Lüdemann;
(iii) Counsel to the Ad Hoc Group of Senior Secured Lenders, Whitfield, Crane & Burgess LLP, 51 West 52nd Street, 38th Floor, New York, New York 10019, Attn: Graham Whitfield III;
(iv) Counsel to Dralvecen Mezzanine Capital LLC, Kellner & Foss LLP, 1185 Avenue of the Americas, 30th Floor, New York, New York 10036, Attn: Theodore Kellner;
(v) Counsel to the informal group of unsecured noteholders, Ashford, Brightmoor Group & McKay PC, 299 Park Avenue, 18th Floor, New York, New York 10171, Attn: Carolyn Brightmoor Group;
(vi) Garrison Trust Company, as Indenture Trustee for the Unsecured Notes, 100 Wall Street, 16th Floor, New York, New York 10005;
(vii) The Debtor's thirty (30) largest unsecured creditors as identified in the list filed with the Court pursuant to Bankruptcy Rule 1007(d); and
(viii) All parties who have filed a request for notice pursuant to Bankruptcy Rule 2002.
83. The Debtor submits that no other or further notice of this Motion is required under the Bankruptcy Code, the Bankruptcy Rules, the Local Rules of this Court, or the circumstances of this case.
XI. NO PRIOR REQUEST
84. No prior motion for the relief requested herein has been made to this or any other court.
XII. CONCLUSION AND PRAYER FOR RELIEF
WHEREFORE, the Debtor respectfully requests that this Court enter interim and final orders, substantially in the forms attached hereto as Exhibit A (Proposed Interim Order) and Exhibit B (Proposed Final Order):
1. Authorizing, but not directing, the Debtor to pay the prepetition claims of Critical Vendors in an aggregate amount not to exceed the Critical Vendor Cap of $__ million;
2. Authorizing the Debtor to condition such payments upon the execution of Critical Vendor Agreements requiring each Critical Vendor to continue supplying the Debtor on Customary Trade Terms for the duration of the Chapter 11 case;
3. Authorizing the Debtor to seek disgorgement of payments from any Critical Vendor that fails to comply with the terms of its Critical Vendor Agreement, or, in the alternative, to treat such payment as a postpetition advance giving rise to an administrative expense claim in favor of the Debtor's estate;
4. Authorizing the Debtor's banks and financial institutions to receive, process, honor, and pay all checks, wire transfers, electronic fund transfers, and other payment instructions issued by the Debtor in connection with the payment of Critical Vendor claims consistent with the Orders entered on this Motion;
5. Scheduling a final hearing on this Motion and establishing a deadline for the filing of objections thereto; and
6. Granting such other and further relief as this Court deems just and proper.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Nathaniel Bower (Responsible Partner) Amy Chesterton (Lead Associate) Nathan Ikeda (Working Associate)
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
Dated: January 16, 2023
EXHIBIT A
PROPOSED INTERIM ORDER
UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION
In re:
THALASSA AMERICAS INC., a Delaware corporation,
Debtor.
Chapter 11
Case No. ____
INTERIM ORDER AUTHORIZING, BUT NOT DIRECTING, THE DEBTOR TO PAY CERTAIN PREPETITION CLAIMS OF CRITICAL VENDORS PURSUANT TO 11 U.S.C. §§ 105(a) AND 363(b)
Upon the Motion (the "Motion")¹ of Thalassa Americas Inc. (the "Debtor"), the above-captioned debtor and debtor in possession, for entry of an interim order authorizing, but not directing, the Debtor to pay certain prepetition claims of critical vendors (the "Critical Vendors"), as more fully described in the Motion; and this Court having reviewed the Motion and the Declaration of Marcus Hale, President of Thalassa Americas Inc., in Support of First-Day Motions (the "Hale Declaration"), filed concurrently therewith; and this Court having considered the statements of counsel and the evidence presented at the interim hearing held on ____, 2023; and it appearing that adequate and sufficient notice of the Motion and the interim hearing has been given under the circumstances, and that no other or further notice is necessary; and it appearing that the relief requested in the Motion is in the best interest of the Debtor, its estate, its creditors, and other parties in interest; and it appearing that cause exists for the relief granted herein pursuant to Sections 105(a) and 363(b) of the Bankruptcy Code and Bankruptcy Rule 6003, in that the failure to authorize interim payments to Critical Vendors would cause immediate and irreparable harm to the Debtor's estate; and after due deliberation and sufficient cause appearing therefor;
¹ Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion.