1044-00003 · Client 1044 · documents

letter-kf-mezzanine-exchange.docx DOCUMENT Finance & Banking

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CONFIDENTIAL — FOR SETTLEMENT DISCUSSION PURPOSES ONLY

CALDERWOOD & HARKNESS LLP Attorneys at Law 780 Third Avenue New York, NY 10017

Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com

February 6, 2023

Theodore Kellner, Esq. Kellner & Foss LLP 1185 Avenue of the Americas, 30th Floor New York, NY 10036

Re: Thalassa Shipping & Logistics Société Anonyme / Thalassa Americas Inc. — Proposed Mezzanine Notes Exchange; Dralvecen Mezzanine Capital LLC; Calderwood & Harkness Matter No. 1044-00003

Dear Theodore:

I. Introduction and Purpose

I am writing on behalf of Calderwood & Harkness LLP, counsel to Thalassa Shipping & Logistics Société Anonyme ("TSL") and its wholly-owned Delaware subsidiary, Thalassa Americas Inc. ("TAI"), under the supervision of Nathaniel Bower, the responsible partner on this engagement. The purpose of this letter is to present, on behalf of TSL and TAI, a proposed exchange of the existing mezzanine notes held by your client, Dralvecen Mezzanine Capital LLC ("BMC"), as a central component of the comprehensive out-of-court restructuring currently being negotiated among TSL's various creditor constituencies.

The proposal set forth herein has been developed in close consultation with TSL's financial advisor, Kensington Veltrian Partners LLC ("KHP"), and specifically with James Calloway, Managing Director at KHP, who has been leading the financial advisory workstream in connection with this restructuring. The terms described below reflect extensive analysis of TSL's current enterprise value, capital structure, liquidity position, and projected recovery scenarios, and have been designed to provide BMC with a recovery package that, in our clients' view, represents a superior outcome to the alternatives available in a contested in-court process.

We respectfully request that Kellner & Foss review this proposal in its entirety and discuss it with BMC—and in particular with Rebecca Quimby, Senior Partner at BMC—with a view toward reaching agreement on the principal terms as expeditiously as possible. As you are aware, the current forbearance standstill expires on March 8, 2023, and maintaining the restructuring timeline is critical to preserving value for all stakeholders, including BMC. We believe that prompt engagement on the terms outlined in this letter will serve BMC's interests and facilitate a consensual resolution that avoids the significant costs, delays, and uncertainties of a Chapter 11 proceeding.

II. Background — Current Capital Structure and Financial Position

To provide full context for the proposed exchange, we summarize below the relevant features of TSL's capital structure, its current financial position, and the enterprise valuation framework that underlies the proposal.

A. The Existing Mezzanine Notes

The mezzanine notes held by BMC were issued on June 15, 2019, concurrently with the closing of the Senior Secured Credit Facility described in Section II.B below. The principal terms of the mezzanine notes are as follows:

• Original Principal Amount: $100,000,000.

• Current Principal Outstanding (as of September 30, 2022): $112,300,000, reflecting the capitalization of approximately $12.3 million in payment-in-kind ("PIK") interest since issuance. We note that the issuer has elected PIK on all interest payments since the second quarter of 2022, as permitted under the toggle provisions of the note purchase agreement.

• Interest Rate: 11.5% per annum, PIK toggle.

• Maturity Date: December 15, 2024.

• Security: Second-priority lien on the same collateral pool securing the Senior Secured Credit Facility, consisting of (i) 38 dry-bulk carriers, (ii) 12 container vessels, (iii) the Houston terminal lease, (iv) all accounts receivable of TSL and TAI, and (v) the equity interests in TAI and each of the 14 vessel-owning special purpose vehicles organized as subsidiaries of TSL and TAI (the "Vessel SPVs").

• Intercreditor Agreement: The Intercreditor Agreement dated June 15, 2019, by and between Nordbank International AG, in its capacity as first-lien administrative agent and collateral agent, and BMC, governs the relative priorities, rights, and remedies of the first-lien and second-lien creditors with respect to the shared collateral pool.

B. Senior Secured Credit Facility (First-Lien Context)

The Senior Secured Credit Facility, which represents the most senior tranche of TSL's funded indebtedness, is summarized below:

• Total Commitment: $685,000,000, provided by a syndicate of nine lenders, with Nordbank International AG serving as Administrative Agent and Collateral Agent.

• Outstanding as of September 30, 2022: $540,000,000, allocated as follows:

• Term Loan A ("TLA"): $270,000,000;

• Revolving Credit Facility ("RCF"): $185,000,000 drawn against a total commitment of $200,000,000; and

• U.S. Tranche Term Loan B ("TLB"): $85,000,000 (borrowed by TAI as co-borrower).

• Original Maturity: June 15, 2024.

• Interest Rate: SOFR + 375 basis points; default rate of an additional 200 basis points, which has been accruing since the occurrence of the events of default described in Section II.D below but which has been held in abeyance during the forbearance period.

• Security: First-priority liens on all collateral described in Section II.A above.

C. Additional Indebtedness

In addition to the Senior Secured Credit Facility and the mezzanine notes, TSL's capital structure includes the following material obligations:

• Senior Unsecured Notes: $50,000,000 aggregate principal amount of 8.25% Senior Unsecured Notes due March 1, 2025, issued under an indenture with Garrison Trust Company as indenture trustee. TSL missed the scheduled semi-annual interest payment of $2,062,500 due December 1, 2022. The applicable 30-day cure period under the indenture expired on January 1, 2023, constituting an event of default under the unsecured notes indenture. To date, no acceleration notice has been delivered by the indenture trustee or the requisite percentage of noteholders.

• Intercompany Note: $76,400,000 subordinated intercompany note from TAI to TSL, bearing interest at 5.0% per annum. This note is structurally and contractually subordinated to all external indebtedness of TAI.

• Trade Payables: Approximately $38,700,000 in outstanding trade payables across TSL and TAI, the largest single creditor being Olympian Fuel & Supply SA, which is owed approximately $9,200,000 in respect of bunker fuel deliveries.

• Total Consolidated Indebtedness (as of September 30, 2022): Approximately $847,300,000 across all facilities and instruments (consisting of $540,000,000 under the Senior Secured Credit Facility, $112,300,000 under the mezzanine notes, $50,000,000 under the Senior Unsecured Notes, $76,400,000 under the intercompany note, and $38,700,000 in trade payables, with the intercompany note excluded from certain external debt calculations for covenant purposes).

D. Financial Overview and Liquidity Crisis

TSL's financial deterioration over the past twelve months has been severe and has been driven principally by the collapse in dry-bulk charter rates and, to a lesser extent, softening container freight rates. The key financial metrics are as follows:

• Revenue Decline: TSL's consolidated revenue declined from approximately €1.42 billion in fiscal year 2021 to an estimated €987 million in fiscal year 2022, representing a decline of approximately 30.5%. This decline was driven primarily by the sharp deterioration in dry-bulk charter rates; the Baltic Dry Index declined approximately 58% between January 2022 and September 2022, and TSL's average daily time charter equivalent ("TCE") rate fell from approximately $24,800 per day to approximately $11,200 per day over the same period.

• TAI Revenue Decline: On a standalone basis, TAI's revenue declined from $312,000,000 in fiscal year 2021 to an estimated $198,000,000 in fiscal year 2022, reflecting the disproportionate impact of rate declines on TAI's U.S.-focused dry-bulk and container operations.

• Profitability and Debt Service Capacity: Last twelve months ("LTM") EBITDA as of September 30, 2022 was $98,600,000. LTM interest expense over the same period was $56,700,000. The resulting debt service coverage, while still technically positive, leaves insufficient headroom for capital expenditures, drydocking obligations, and working capital needs.

• Covenant Breaches: As of September 30, 2022, TSL was in breach of three financial covenants under the Senior Secured Credit Agreement:

(i) Minimum Liquidity Covenant: Cash and cash equivalents were $27,300,000 as of September 15, 2022, against a required minimum of $40,000,000, representing a shortfall of $12,700,000. This covenant was the first to be breached and triggered the initial default notice from Nordbank.

(ii) Maximum Net Leverage Ratio: The Net Leverage Ratio was 7.82x (calculated as Net Debt of $770,900,000 divided by LTM EBITDA of $98,600,000), compared to the maximum permitted ratio of 5.50x under the credit agreement.

(iii) Minimum Interest Coverage Ratio: The Interest Coverage Ratio was 1.74x (calculated as LTM EBITDA of $98,600,000 divided by LTM interest expense of $56,700,000), compared to the minimum required ratio of 2.50x.

• Forbearance Agreement: Following the occurrence of these events of default, TSL, TAI, and the requisite lenders under the Senior Secured Credit Facility entered into a Forbearance Agreement dated October 10, 2022 (the "Forbearance Agreement"), providing for a 90-day standstill during which the lenders agreed to forbear from exercising remedies under the credit agreement. The initial standstill period was extended pursuant to a First Amendment to Forbearance Agreement executed on January 8, 2023, extending the forbearance period through March 8, 2023.

E. Fleet Valuation

TSL's fleet, which constitutes the core operating asset base and the primary collateral securing both the first-lien and second-lien indebtedness, was appraised by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, principal) as of November 1, 2022. The key findings of that appraisal are as follows:

• Total Fleet: 50 vessels (38 dry-bulk carriers and 12 container vessels).

• Aggregate Appraised Value (November 1, 2022): $623,000,000, representing a decline of $268,000,000, or approximately 30.1%, from the prior appraisal value of $891,000,000 as of January 2022.

• Breakdown by Vessel Type:

The fleet valuation decline reflects the broader deterioration in secondhand vessel values across all segments, which has closely tracked the decline in spot and period charter rates over the course of 2022.

F. Enterprise Valuation Context

KHP has performed a comprehensive enterprise valuation of TSL on a going-concern basis, utilizing a discounted cash flow methodology, comparable company analysis, and precedent transaction analysis. KHP estimates the enterprise value of TSL in the range of $580,000,000 to $640,000,000, with a midpoint of $610,000,000.

This valuation range has significant implications for the recovery analysis applicable to BMC's mezzanine notes. With $540,000,000 of senior secured debt outstanding and holding first-priority liens on all collateral, the mezzanine notes represent the "fulcrum security" in TSL's capital structure—that is, the tranche of debt that straddles the enterprise value breakpoint and is therefore only partially covered by available asset value.

At the midpoint enterprise value of $610,000,000, the implied recovery on the mezzanine notes is calculated as follows:

Residual Value Available to Mezzanine = $610,000,000 − $540,000,000 = $70,000,000

Mezzanine Recovery Rate = $70,000,000 ÷ $112,300,000 = 62.3%

For reference, KHP's waterfall analysis indicates that in a Chapter 11 scenario, the $50,000,000 of Senior Unsecured Notes would receive an estimated recovery of between 8 and 14 cents on the dollar, reflecting the significant administrative costs and value leakage associated with an in-court process.

The valuation and waterfall analysis are central to the rationale for the proposed exchange, which we describe in the following section.

III. The Proposed Mezzanine Exchange

A. Summary of Proposed Terms

TSL proposes that BMC exchange the full outstanding principal amount of $112,300,000 of existing mezzanine notes (together with all accrued and unpaid interest thereon) for the following consideration:

(a) New Second-Lien Notes: $60,000,000 in aggregate principal amount of new second-lien notes, to be issued by TSL on the terms described in Section III.B below; and

(b) Equity: 15% of the total issued and outstanding equity of Thalassa Shipping & Logistics Société Anonyme, to be issued to BMC on the terms described in Section III.C below.

The exchange implies a haircut on the debt component of approximately 46.6%, calculated as follows:

Debt Haircut = ($112,300,000 − $60,000,000) ÷ $112,300,000 = $52,300,000 ÷ $112,300,000 = 46.6%

However, as discussed in Section III.D below, the equity component is intended to provide BMC with meaningful upside participation that, when considered together with the $60,000,000 of new second-lien debt, results in a blended recovery that TSL believes is superior to the alternatives.

B. New Second-Lien Notes — Key Terms

The principal terms of the proposed new second-lien notes are as follows:

• Principal Amount: $60,000,000.

• Interest Rate: 10.0% per annum, payable in kind. This represents a reduction of 150 basis points from the current 11.5% PIK rate on the existing mezzanine notes, reflecting the broader deleveraging and covenant reset being implemented across the capital structure.

• Maturity: June 2028, representing an extension of approximately three and one-half years from the current maturity date of December 15, 2024. The extended maturity is designed to provide TSL with sufficient runway to execute on its business plan and fleet optimization strategy, and to allow for the potential recovery in charter rates that is projected by leading industry analysts beginning in 2025.

• Security: Second-priority lien on the same collateral pool currently securing the existing mezzanine notes, including all vessels, the Houston terminal lease, accounts receivable, and equity interests in TAI and the Vessel SPVs. The second-priority lien will be subject to an Amended and Restated Intercreditor Agreement to be entered into by and between Nordbank International AG (as first-lien agent) and BMC (or a successor second-lien agent, if designated), reflecting the modified terms of the new second-lien notes and the reduced second-lien quantum.

• Governing Documents: The new second-lien notes will be issued under a new Note Purchase Agreement and governed by a new indenture, each to be negotiated and drafted as part of the definitive documentation process. The covenants, events of default, and other terms of the new indenture are expected to be broadly consistent with the existing note purchase agreement, subject to such modifications as are necessary to reflect the restructured terms and the overall RSA framework.

• Issuer: Thalassa Shipping & Logistics Société Anonyme.

C. Equity Component

In addition to the new second-lien notes, BMC will receive 15% of the total issued and outstanding equity of TSL. The key terms and implications of the equity component are as follows:

• Ownership Percentage: 15% of the total equity of TSL, to be issued to BMC at the closing of the exchange.

• Dilution Impact on Existing Shareholders: The issuance of equity to BMC will dilute the holdings of all existing shareholders of TSL on a pro rata basis. The current shareholder composition and the post-exchange dilution impact are summarized as follows:

• Minority Protections and Governance Rights: The equity to be issued to BMC will carry customary minority protections and governance rights, the specific terms of which are to be negotiated as part of the definitive documentation process. TSL anticipates that these protections would include, at a minimum, one board observer seat or one board seat (to be discussed), customary information rights, anti-dilution protections, and consent rights over specified material transactions affecting BMC's interest.

• Transfer Restrictions: During the RSA implementation period, BMC's equity interest (and its existing mezzanine notes, pending the closing of the exchange) would be subject to a lock-up agreement restricting transfers, the terms of which will be discussed in connection with the RSA negotiation. TSL anticipates that following the closing of the exchange, any ongoing transfer restrictions on the new equity would be limited and customary for a private company equity investment of this nature.

D. Rationale and Value Proposition for BMC

TSL recognizes that the proposed exchange requires BMC to accept a significant reduction in the face amount of its debt claim, and that such a concession must be justified by a commensurate value proposition. TSL and its advisors believe that the proposed exchange offers BMC the following benefits:

1. Blended Recovery Exceeding Chapter 11 Alternative. The exchange provides BMC with a blended recovery consisting of $60,000,000 in new secured debt plus a 15% equity stake in a reorganized TSL. When the equity upside is considered alongside the new debt, the total package is intended to exceed the estimated Chapter 11 recovery of approximately 62.3% at midpoint enterprise value. We note that in a Chapter 11 scenario, administrative costs, DIP financing charges, and other value-eroding expenses would reduce the amount available for distribution to mezzanine creditors below the theoretical waterfall recovery. As set forth in Section V below, estimated first-year Chapter 11 administrative costs alone would be approximately $18,500,000, reducing the residual value available to BMC before any other sources of value leakage are taken into account.

2. Equity upside Participation. The 15% equity stake provides BMC with meaningful participation in the potential recovery of TSL's enterprise value. The dry-bulk shipping market is cyclical, and leading industry analysts project a recovery in charter rates beginning in late 2024 or 2025, driven by a tightening of vessel supply as the global orderbook remains at historically low levels. If charter rates recover to levels approximating the mid-cycle average, the enterprise value of TSL could increase substantially, providing significant value accretion to BMC's equity position. This optionality is not available in a debt-only recovery.

3. Extended Maturity and Operational Runway. The extension of maturity from December 15, 2024 to June 2028 provides significantly more runway for TSL to execute on its business plan, complete the planned vessel dispositions, and benefit from a cyclical recovery in the shipping markets. Under the current maturity, the mezzanine notes would come due in less than two years under market conditions that make refinancing extremely challenging. The extended maturity eliminates this near-term cliff risk.

4. Avoidance of Chapter 11 Costs and Disruption. A successful out-of-court restructuring preserves going-concern value, avoids estimated administrative costs of $18,500,000 in the first twelve months of a Chapter 11 case, and mitigates operational disruption to TSL's fleet and logistics business. In-court proceedings in the maritime sector carry particular risks, including potential counterparty termination rights under certain charter party arrangements, loss of commercial relationships, and regulatory complications in multiple jurisdictions.

5. Improved Second-Lien Cushion Through Vessel Dispositions. As part of the broader restructuring, TSL has agreed to sell six older dry-bulk carriers (average age of approximately 18 years) within twelve months of the closing of the restructuring, for estimated aggregate proceeds of approximately $72,000,000. Net proceeds from these dispositions will be applied to prepay Term Loan A, thereby reducing the quantum of first-lien debt senior to BMC's second-lien position. All else being equal, a $72,000,000 reduction in senior-lien debt would substantially increase the residual value cushion protecting BMC's $60,000,000 of new second-lien notes.

IV. Context Within the Broader Restructuring — RSA Framework

The proposed mezzanine exchange is one component of a comprehensive out-of-court restructuring that TSL is negotiating with its principal creditor constituencies. The other major elements of the restructuring are summarized below, to provide BMC with full context regarding the overall framework.

A. Senior Secured Facility Amendment

TSL is in advanced negotiations with the Ad Hoc Group of Senior Secured Lenders regarding an amendment to the Senior Secured Credit Agreement. The Ad Hoc Group consists of Nordbank International AG, Harborstone Bank, Triton Credit Partners, and Continental Maritime Lending, which collectively hold approximately $372,000,000, or 54.3%, of the $685,000,000 total facility commitments (and approximately 68.9% of the $540,000,000 outstanding). The Ad Hoc Group is advised by Whitfield, Crane & Burgess LLP (Graham Whitfield III, lead partner) and Draycott Advisory Group LLC (Vanessa Chow, Managing Director).

The principal terms of the proposed amendment (to be documented as Amendment No. 1 to the Senior Secured Credit Agreement) are as follows:

• Maturity Extension: The maturity of the Senior Secured Credit Facility will be extended from June 15, 2024 to June 15, 2027, providing an additional three years of runway.

• PIK Conversion: $75,000,000 of outstanding Term Loan A principal will be converted to PIK, reducing near-term cash debt service obligations and improving TSL's free cash flow during the restructuring implementation period.

• Revolver Commitment Reduction: The revolving credit facility commitment will be reduced from $200,000,000 to $150,000,000, reflecting the reduced availability needs of the business following the vessel dispositions and cost restructuring measures being implemented by management.

• Financial Covenant Reset: The financial maintenance covenants will be reset as follows:

(i) Maximum Net Leverage Ratio: Reset to 7.00x, stepping down to 6.25x by Q2 2025 and to 5.50x by Q4 2025;

(ii) Minimum Liquidity: Reduced from $40,000,000 to $30,000,000; and

(iii) Minimum Interest Coverage Ratio: Waived through Q4 2023, stepping back in at 1.75x in Q1 2024 and increasing to 2.50x by Q4 2025.

• Amendment Fee: 1.00% of outstanding principal under the facility ($540,000,000 × 1.00% = $5,400,000), payable in kind by capitalizing the fee amount onto the outstanding principal balance.

• Default Interest Waiver: Default interest accruing since the occurrence of the events of default (at a rate of SOFR + 575 basis points) will be waived retroactively as a condition of the amendment.

B. Unsecured Notes

The $50,000,000 of Senior Unsecured Notes due March 1, 2025 are proposed to remain unimpaired under the restructuring. The missed December 2022 coupon payment of $2,062,500 will be paid in full in cash at the closing of the restructuring. No modification to the unsecured notes indenture is proposed. Counsel to the informal group of unsecured noteholders is Ashford, Brightmoor Group & McKay PC (Carolyn Brightmoor Group, partner).

C. Trade Creditors

Approximately $38,700,000 in outstanding trade payables will be paid in full in the ordinary course of business. No impairment of trade claims is contemplated. TSL recognizes the critical importance of maintaining its commercial relationships with key vendors and service providers, particularly fuel suppliers, port operators, and drydocking facilities, and any impairment of trade claims would risk significant operational disruption.

D. Equity Contribution

KFO Holdings SA, the family holding company controlled by Dimitrios Kostandinos (62%) and Elena Kostandinos-Pavlou (18%), has agreed to contribute €35,000,000 (approximately $38,200,000 at the current exchange rate of €1 = $1.0914 as of the date hereof) in new equity to TSL. The new equity contribution will be used to fund working capital and liquidity needs during the restructuring implementation period and to pay transaction costs associated with the restructuring (including professional fees, amendment fees, and other closing costs). The equity contribution will be documented in an Equity Subscription Agreement to be executed at the closing of the restructuring.

E. Intercompany Note

The $76,400,000 subordinated intercompany note from TAI to TSL will be modified as follows: (i) the maturity will be extended from its current scheduled maturity to December 2028; and (ii) the interest rate will be reduced from 5.0% per annum to 2.0% per annum. These modifications are designed to reduce TAI's cash debt service burden and to ensure that the intercompany obligations remain fully subordinated to all external indebtedness.

F. Vessel Dispositions

As referenced in Section III.D above, TSL will commit to sell six older dry-bulk carriers within twelve months of the closing of the restructuring. The six vessels have been identified by management and KHP as non-core assets with an average age of approximately 18 years, placing them at or near the end of their economically useful lives under current market conditions. The estimated aggregate sale proceeds are approximately $72,000,000, based on broker estimates obtained by TSL in December 2022 and January 2023. Net proceeds from the vessel dispositions, after deduction of sale costs and any outstanding vessel-level obligations, will be applied to prepay outstanding Term Loan A principal on a dollar-for-dollar basis.

G. Amended and Restated Intercreditor Agreement

The existing Intercreditor Agreement dated June 15, 2019, between Nordbank International AG (as first-lien agent) and BMC, will be amended and restated to reflect the terms of the new second-lien notes, the reduced second-lien quantum ($60,000,000 in lieu of $112,300,000), and such other modifications as are necessary to conform to the restructured capital structure. The Amended and Restated Intercreditor Agreement will be a key component of the definitive documentation and will be subject to negotiation among Calderwood & Harkness (on behalf of TSL), Whitfield, Crane & Burgess (on behalf of the Ad Hoc Group), and Kellner & Foss (on behalf of BMC).

V. Chapter 11 Alternative — Context for BMC

While TSL strongly prefers the out-of-court restructuring path and believes it represents the value-maximizing outcome for all stakeholders, TSL has, as a matter of prudent contingency planning, prepared a comprehensive Chapter 11 plan in the event that a consensual out-of-court resolution cannot be achieved.

The key parameters of the Chapter 11 contingency plan are as follows:

• Filing Entity and Venue: TAI would be the primary filing entity, with a proposed filing venue in the United States Bankruptcy Court for the Southern District of Texas (Houston Division). The Houston venue is appropriate given the location of TAI's principal U.S. operations, including the Houston terminal, and the Southern District of Texas's extensive experience with large, complex maritime and energy restructurings.

• DIP Financing: A DIP financing term sheet for a $75,000,000 superpriority debtor-in-possession facility has been received from Nordbank International AG and Triton Credit Partners, on the following indicative terms: interest rate of SOFR + 600 basis points; commitment fee of 0.50%; maturity of 12 months from the petition date; and superpriority administrative expense and priming lien status. The DIP facility would provide TAI with the liquidity necessary to fund operations and the Chapter 11 process during the pendency of the case.

• Estimated Chapter 11 Administrative Costs (First 12 Months): $18,500,000, consisting of legal fees for the debtor, the official committee of unsecured creditors, and other retained professionals; financial advisory fees (including investment banker, restructuring advisor, and claims agent fees); CRO compensation; United States Trustee quarterly fees; and other administrative expenses customary in a case of this size and complexity. These costs represent a significant source of value leakage that reduces the amount available for distribution to creditors, particularly junior creditors such as the mezzanine noteholders.

• Chief Restructuring Officer: CRO services have been arranged on a standby basis with Alderney Management Advisors LLC. Richard "Rick" Thornberg, a senior managing director at Alderney with extensive experience in maritime and transportation restructurings, has been designated as the CRO and would assume the role upon a Chapter 11 filing.

• Impact on Mezzanine Recovery: In a Chapter 11 scenario, the mezzanine notes, as the fulcrum security, would likely be subject to a plan of reorganization treatment that could include a conversion of some or all of the mezzanine claim into equity of the reorganized debtor, with or without a new debt component. Critically, the estimated $18,500,000 in first-year administrative costs, combined with DIP financing costs, the superpriority status of the DIP claims, and other administrative expenses, would erode the value available for distribution to mezzanine creditors below the theoretical recovery calculated in Section II.F above. Moreover, the Chapter 11 process would involve substantial timing uncertainty—a contested case could take 12 to 18 months or longer—during which period fleet values could continue to deteriorate, further diminishing the recovery available to BMC.

The out-of-court path, by contrast, avoids these significant costs, preserves management continuity and commercial relationships, and allows TSL to execute on its operational restructuring plan without the disruption and stigma associated with a bankruptcy filing. TSL firmly believes that the proposed exchange described in Section III above provides BMC with a superior risk-adjusted recovery compared to the Chapter 11 alternative.

VI. Timeline and Process

Time is of the essence. The current forbearance standstill runs through March 8, 2023 (as extended pursuant to the First Amendment to Forbearance Agreement executed on January 8, 2023). While the possibility of a further extension exists, it is contingent on continued progress toward a consensual restructuring, and there can be no assurance that the senior lenders will agree to a further extension absent demonstrable momentum toward a binding agreement.

The key milestones in the restructuring timeline are as follows:

• RSA Term Sheet Circulation: A formal term sheet for the comprehensive Restructuring Support Agreement ("RSA") is expected to be circulated to all creditor groups by approximately February 10, 2023.

• RSA Execution Target: TSL is targeting execution of the RSA, binding all major creditor constituencies (including the Ad Hoc Group of Senior Secured Lenders, BMC, and the informal group of unsecured noteholders), by mid-March 2023.

• Definitive Documentation: Upon execution of the RSA, the parties would work to finalize definitive documentation, including:

(i) Amendment No. 1 to the Senior Secured Credit Agreement; (ii) New Second-Lien Note Purchase Agreement; (iii) New Second-Lien Notes Indenture; (iv) Amended and Restated Intercreditor Agreement; (v) Equity Subscription Agreement (KFO Holdings SA equity contribution); (vi) BMC Equity Issuance Agreement and related governance documents; (vii) Lock-Up Agreement; and (viii) Ancillary documents and closing deliverables.

The target for completion of definitive documentation is approximately May 2023.

• RSA Closing / Effective Date: The target closing and effective date for the restructuring is June 30, 2023.

• Lock-Up Agreement: A lock-up agreement with BMC would be executed concurrently with the RSA. The lock-up would restrict BMC from transferring, selling, assigning, or otherwise disposing of (i) the existing mezzanine notes during the period between RSA execution and the closing of the exchange, and (ii) the new equity and new second-lien notes for a specified period following closing (to be negotiated). The lock-up agreement would also contain customary commitments by BMC to support the restructuring, vote in favor of any required consents or approvals, and refrain from taking any action inconsistent with the RSA.

• BMC Response Requested: We respectfully request that BMC provide its initial response to this proposal and confirm its willingness to engage on these terms by no later than February 17, 2023. This timeline is necessary to maintain the overall restructuring schedule and to ensure that TSL can demonstrate sufficient progress to the senior lenders in advance of the March 8, 2023 forbearance deadline.

VII. Confidentiality

This letter and the proposal contained herein are strictly confidential and are being transmitted solely for purposes of settlement discussions between the parties. The contents of this letter are protected by Federal Rule of Evidence 408 and any applicable state law equivalents, and are not to be construed as an admission of any fact, liability, or obligation by TSL, TAI, or any of their respective affiliates, officers, directors, or advisors.

We respectfully request that the contents of this letter and the terms of the proposed exchange not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP, except as may be necessary for BMC's internal evaluation and decision-making processes and as may be shared with BMC's counsel, Kellner & Foss LLP, in connection with such evaluation. The proposal and all related communications are also subject to the confidentiality provisions set forth in Section 12 of the Forbearance Agreement dated October 10, 2022 (as amended), and we expect all parties to comply with those provisions in full.

VIII. Invitation to Discuss and Next Steps

We recognize that this is a detailed and significant proposal, and we welcome the opportunity to discuss it with you and with BMC in detail. We would propose a call or in-person meeting among Kellner & Foss, Calderwood & Harkness, and the respective financial advisors—KHP on the TSL side, and Draycott Advisory Group if engaged by the Ad Hoc Group, or any financial advisor separately retained by BMC—to walk through the proposal, answer questions, and begin the process of negotiating toward agreed terms.

In connection with such a discussion, TSL is prepared to provide additional financial information and supporting analysis prepared by Kensington Veltrian Partners, including:

• The 13-week cash flow model for TSL and TAI;

• The detailed enterprise valuation analysis, including the discounted cash flow model, comparable company analysis, and precedent transaction analysis;

• The recovery waterfall analysis for each creditor class under both the out-of-court and Chapter 11 scenarios; and

• Such other financial data and projections as BMC may reasonably request, subject to appropriate confidentiality protections.

We would appreciate receiving BMC's initial reaction to the proposal, any questions BMC may have regarding the terms or the underlying financial analysis, and, to the extent BMC wishes to make a counterproposal, the principal terms of any alternative structure that BMC would find acceptable. Early engagement on these issues will allow the parties to identify areas of agreement and narrow any points of divergence efficiently.

We look forward to working constructively with you and BMC to reach agreement on these terms as part of the broader restructuring of TSL and TAI. We believe that the proposed exchange represents a fair and value-maximizing outcome for BMC, and we are committed to engaging in good faith to address any concerns that BMC may have.

Please do not hesitate to contact me at (212) 554-7218 or achesterton@calderwoodharkness.com, or Nathaniel Bower at (212) 554-7104 or nbower@calderwoodharkness.com, to discuss.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Amy Chesterton Partner

780 Third Avenue New York, NY 10017 Tel: (212) 554-7218

Email: achesterton@calderwoodharkness.com

cc: (via email)

Nathaniel Bower, Esq., Calderwood & Harkness LLP Colette Whitman, Esq., Calderwood & Harkness LLP James Calloway, Managing Director, Kensington Veltrian Partners LLC Georgios Andreadis, Chief Executive Officer, Thalassa Shipping & Logistics SA Irini Dalakoura, Chief Financial Officer, Thalassa Shipping & Logistics SA Marcus Hale, President, Thalassa Americas Inc. Samantha Ong, Esq., Kellner & Foss LLP

Enclosures: None. Supporting financial analyses, including the 13-week cash flow model and enterprise valuation analysis prepared by Kensington Veltrian Partners LLC, will be provided upon request or in connection with a follow-up discussion among the parties.

Vessel Category	Number of Vessels	Appraised Value (Nov. 2022)
Capesize dry-bulk carriers	10	$215,000,000
Panamax dry-bulk carriers	14	$182,000,000
Supramax dry-bulk carriers	14	$128,000,000
Sub-Panamax container vessels	12	$98,000,000
Total	50	$623,000,000
Shareholder	Current Ownership	Post-Exchange Ownership
KFO Holdings SA (Dimitrios Kostandinos — 62%; Elena Kostandinos-Pavlou — 18%)	80%	68% (80% × 85%)
Other non-family holders	20%	17% (20% × 85%)
BMC	0%	15%
Total	100%	100%

CONFIDENTIAL — FOR SETTLEMENT DISCUSSION PURPOSES ONLY
CALDERWOOD & HARKNESS LLP Attorneys at Law 780 Third Avenue New York, NY 10017
Telephone: (212) 554-7000 Facsimile: (212) 554-7001 www.calderwoodharkness.com
February 6, 2023
Theodore Kellner, Esq. Kellner & Foss LLP 1185 Avenue of the Americas, 30th Floor New York, NY 10036
Re: Thalassa Shipping & Logistics Société Anonyme / Thalassa Americas Inc. — Proposed Mezzanine Notes Exchange; Dralvecen Mezzanine Capital LLC; Calderwood & Harkness Matter No. 1044-00003
Dear Theodore:
I. Introduction and Purpose
I am writing on behalf of Calderwood & Harkness LLP, counsel to Thalassa Shipping & Logistics Société Anonyme ("TSL") and its wholly-owned Delaware subsidiary, Thalassa Americas Inc. ("TAI"), under the supervision of Nathaniel Bower, the responsible partner on this engagement. The purpose of this letter is to present, on behalf of TSL and TAI, a proposed exchange of the existing mezzanine notes held by your client, Dralvecen Mezzanine Capital LLC ("BMC"), as a central component of the comprehensive out-of-court restructuring currently being negotiated among TSL's various creditor constituencies.
The proposal set forth herein has been developed in close consultation with TSL's financial advisor, Kensington Veltrian Partners LLC ("KHP"), and specifically with James Calloway, Managing Director at KHP, who has been leading the financial advisory workstream in connection with this restructuring. The terms described below reflect extensive analysis of TSL's current enterprise value, capital structure, liquidity position, and projected recovery scenarios, and have been designed to provide BMC with a recovery package that, in our clients' view, represents a superior outcome to the alternatives available in a contested in-court process.
We respectfully request that Kellner & Foss review this proposal in its entirety and discuss it with BMC—and in particular with Rebecca Quimby, Senior Partner at BMC—with a view toward reaching agreement on the principal terms as expeditiously as possible. As you are aware, the current forbearance standstill expires on March 8, 2023, and maintaining the restructuring timeline is critical to preserving value for all stakeholders, including BMC. We believe that prompt engagement on the terms outlined in this letter will serve BMC's interests and facilitate a consensual resolution that avoids the significant costs, delays, and uncertainties of a Chapter 11 proceeding.
II. Background — Current Capital Structure and Financial Position
To provide full context for the proposed exchange, we summarize below the relevant features of TSL's capital structure, its current financial position, and the enterprise valuation framework that underlies the proposal.
A. The Existing Mezzanine Notes
The mezzanine notes held by BMC were issued on June 15, 2019, concurrently with the closing of the Senior Secured Credit Facility described in Section II.B below. The principal terms of the mezzanine notes are as follows:
• Original Principal Amount: $100,000,000.
• Current Principal Outstanding (as of September 30, 2022): $112,300,000, reflecting the capitalization of approximately $12.3 million in payment-in-kind ("PIK") interest since issuance. We note that the issuer has elected PIK on all interest payments since the second quarter of 2022, as permitted under the toggle provisions of the note purchase agreement.
• Interest Rate: 11.5% per annum, PIK toggle.
• Maturity Date: December 15, 2024.
• Security: Second-priority lien on the same collateral pool securing the Senior Secured Credit Facility, consisting of (i) 38 dry-bulk carriers, (ii) 12 container vessels, (iii) the Houston terminal lease, (iv) all accounts receivable of TSL and TAI, and (v) the equity interests in TAI and each of the 14 vessel-owning special purpose vehicles organized as subsidiaries of TSL and TAI (the "Vessel SPVs").
• Intercreditor Agreement: The Intercreditor Agreement dated June 15, 2019, by and between Nordbank International AG, in its capacity as first-lien administrative agent and collateral agent, and BMC, governs the relative priorities, rights, and remedies of the first-lien and second-lien creditors with respect to the shared collateral pool.
B. Senior Secured Credit Facility (First-Lien Context)
The Senior Secured Credit Facility, which represents the most senior tranche of TSL's funded indebtedness, is summarized below:
• Total Commitment: $685,000,000, provided by a syndicate of nine lenders, with Nordbank International AG serving as Administrative Agent and Collateral Agent.
• Outstanding as of September 30, 2022: $540,000,000, allocated as follows:
• Term Loan A ("TLA"): $270,000,000;
• Revolving Credit Facility ("RCF"): $185,000,000 drawn against a total commitment of $200,000,000; and
• U.S. Tranche Term Loan B ("TLB"): $85,000,000 (borrowed by TAI as co-borrower).
• Original Maturity: June 15, 2024.
• Interest Rate: SOFR + 375 basis points; default rate of an additional 200 basis points, which has been accruing since the occurrence of the events of default described in Section II.D below but which has been held in abeyance during the forbearance period.
• Security: First-priority liens on all collateral described in Section II.A above.
C. Additional Indebtedness
In addition to the Senior Secured Credit Facility and the mezzanine notes, TSL's capital structure includes the following material obligations:
• Senior Unsecured Notes: $50,000,000 aggregate principal amount of 8.25% Senior Unsecured Notes due March 1, 2025, issued under an indenture with Garrison Trust Company as indenture trustee. TSL missed the scheduled semi-annual interest payment of $2,062,500 due December 1, 2022. The applicable 30-day cure period under the indenture expired on January 1, 2023, constituting an event of default under the unsecured notes indenture. To date, no acceleration notice has been delivered by the indenture trustee or the requisite percentage of noteholders.
• Intercompany Note: $76,400,000 subordinated intercompany note from TAI to TSL, bearing interest at 5.0% per annum. This note is structurally and contractually subordinated to all external indebtedness of TAI.
• Trade Payables: Approximately $38,700,000 in outstanding trade payables across TSL and TAI, the largest single creditor being Olympian Fuel & Supply SA, which is owed approximately $9,200,000 in respect of bunker fuel deliveries.
• Total Consolidated Indebtedness (as of September 30, 2022): Approximately $847,300,000 across all facilities and instruments (consisting of $540,000,000 under the Senior Secured Credit Facility, $112,300,000 under the mezzanine notes, $50,000,000 under the Senior Unsecured Notes, $76,400,000 under the intercompany note, and $38,700,000 in trade payables, with the intercompany note excluded from certain external debt calculations for covenant purposes).
D. Financial Overview and Liquidity Crisis
TSL's financial deterioration over the past twelve months has been severe and has been driven principally by the collapse in dry-bulk charter rates and, to a lesser extent, softening container freight rates. The key financial metrics are as follows:
• Revenue Decline: TSL's consolidated revenue declined from approximately €1.42 billion in fiscal year 2021 to an estimated €987 million in fiscal year 2022, representing a decline of approximately 30.5%. This decline was driven primarily by the sharp deterioration in dry-bulk charter rates; the Baltic Dry Index declined approximately 58% between January 2022 and September 2022, and TSL's average daily time charter equivalent ("TCE") rate fell from approximately $24,800 per day to approximately $11,200 per day over the same period.
• TAI Revenue Decline: On a standalone basis, TAI's revenue declined from $312,000,000 in fiscal year 2021 to an estimated $198,000,000 in fiscal year 2022, reflecting the disproportionate impact of rate declines on TAI's U.S.-focused dry-bulk and container operations.
• Profitability and Debt Service Capacity: Last twelve months ("LTM") EBITDA as of September 30, 2022 was $98,600,000. LTM interest expense over the same period was $56,700,000. The resulting debt service coverage, while still technically positive, leaves insufficient headroom for capital expenditures, drydocking obligations, and working capital needs.
• Covenant Breaches: As of September 30, 2022, TSL was in breach of three financial covenants under the Senior Secured Credit Agreement:
(i) Minimum Liquidity Covenant: Cash and cash equivalents were $27,300,000 as of September 15, 2022, against a required minimum of $40,000,000, representing a shortfall of $12,700,000. This covenant was the first to be breached and triggered the initial default notice from Nordbank.
(ii) Maximum Net Leverage Ratio: The Net Leverage Ratio was 7.82x (calculated as Net Debt of $770,900,000 divided by LTM EBITDA of $98,600,000), compared to the maximum permitted ratio of 5.50x under the credit agreement.
(iii) Minimum Interest Coverage Ratio: The Interest Coverage Ratio was 1.74x (calculated as LTM EBITDA of $98,600,000 divided by LTM interest expense of $56,700,000), compared to the minimum required ratio of 2.50x.
• Forbearance Agreement: Following the occurrence of these events of default, TSL, TAI, and the requisite lenders under the Senior Secured Credit Facility entered into a Forbearance Agreement dated October 10, 2022 (the "Forbearance Agreement"), providing for a 90-day standstill during which the lenders agreed to forbear from exercising remedies under the credit agreement. The initial standstill period was extended pursuant to a First Amendment to Forbearance Agreement executed on January 8, 2023, extending the forbearance period through March 8, 2023.
E. Fleet Valuation
TSL's fleet, which constitutes the core operating asset base and the primary collateral securing both the first-lien and second-lien indebtedness, was appraised by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, principal) as of November 1, 2022. The key findings of that appraisal are as follows:
• Total Fleet: 50 vessels (38 dry-bulk carriers and 12 container vessels).
• Aggregate Appraised Value (November 1, 2022): $623,000,000, representing a decline of $268,000,000, or approximately 30.1%, from the prior appraisal value of $891,000,000 as of January 2022.
• Breakdown by Vessel Type:
The fleet valuation decline reflects the broader deterioration in secondhand vessel values across all segments, which has closely tracked the decline in spot and period charter rates over the course of 2022.
F. Enterprise Valuation Context
KHP has performed a comprehensive enterprise valuation of TSL on a going-concern basis, utilizing a discounted cash flow methodology, comparable company analysis, and precedent transaction analysis. KHP estimates the enterprise value of TSL in the range of $580,000,000 to $640,000,000, with a midpoint of $610,000,000.
This valuation range has significant implications for the recovery analysis applicable to BMC's mezzanine notes. With $540,000,000 of senior secured debt outstanding and holding first-priority liens on all collateral, the mezzanine notes represent the "fulcrum security" in TSL's capital structure—that is, the tranche of debt that straddles the enterprise value breakpoint and is therefore only partially covered by available asset value.
At the midpoint enterprise value of $610,000,000, the implied recovery on the mezzanine notes is calculated as follows:
Residual Value Available to Mezzanine = $610,000,000 − $540,000,000 = $70,000,000
Mezzanine Recovery Rate = $70,000,000 ÷ $112,300,000 = 62.3%
For reference, KHP's waterfall analysis indicates that in a Chapter 11 scenario, the $50,000,000 of Senior Unsecured Notes would receive an estimated recovery of between 8 and 14 cents on the dollar, reflecting the significant administrative costs and value leakage associated with an in-court process.
The valuation and waterfall analysis are central to the rationale for the proposed exchange, which we describe in the following section.
III. The Proposed Mezzanine Exchange
A. Summary of Proposed Terms
TSL proposes that BMC exchange the full outstanding principal amount of $112,300,000 of existing mezzanine notes (together with all accrued and unpaid interest thereon) for the following consideration:
(a) New Second-Lien Notes: $60,000,000 in aggregate principal amount of new second-lien notes, to be issued by TSL on the terms described in Section III.B below; and
(b) Equity: 15% of the total issued and outstanding equity of Thalassa Shipping & Logistics Société Anonyme, to be issued to BMC on the terms described in Section III.C below.
The exchange implies a haircut on the debt component of approximately 46.6%, calculated as follows:
Debt Haircut = ($112,300,000 − $60,000,000) ÷ $112,300,000 = $52,300,000 ÷ $112,300,000 = 46.6%
However, as discussed in Section III.D below, the equity component is intended to provide BMC with meaningful upside participation that, when considered together with the $60,000,000 of new second-lien debt, results in a blended recovery that TSL believes is superior to the alternatives.
B. New Second-Lien Notes — Key Terms
The principal terms of the proposed new second-lien notes are as follows:
• Principal Amount: $60,000,000.
• Interest Rate: 10.0% per annum, payable in kind. This represents a reduction of 150 basis points from the current 11.5% PIK rate on the existing mezzanine notes, reflecting the broader deleveraging and covenant reset being implemented across the capital structure.
• Maturity: June 2028, representing an extension of approximately three and one-half years from the current maturity date of December 15, 2024. The extended maturity is designed to provide TSL with sufficient runway to execute on its business plan and fleet optimization strategy, and to allow for the potential recovery in charter rates that is projected by leading industry analysts beginning in 2025.
• Security: Second-priority lien on the same collateral pool currently securing the existing mezzanine notes, including all vessels, the Houston terminal lease, accounts receivable, and equity interests in TAI and the Vessel SPVs. The second-priority lien will be subject to an Amended and Restated Intercreditor Agreement to be entered into by and between Nordbank International AG (as first-lien agent) and BMC (or a successor second-lien agent, if designated), reflecting the modified terms of the new second-lien notes and the reduced second-lien quantum.
• Governing Documents: The new second-lien notes will be issued under a new Note Purchase Agreement and governed by a new indenture, each to be negotiated and drafted as part of the definitive documentation process. The covenants, events of default, and other terms of the new indenture are expected to be broadly consistent with the existing note purchase agreement, subject to such modifications as are necessary to reflect the restructured terms and the overall RSA framework.
• Issuer: Thalassa Shipping & Logistics Société Anonyme.
C. Equity Component
In addition to the new second-lien notes, BMC will receive 15% of the total issued and outstanding equity of TSL. The key terms and implications of the equity component are as follows:
• Ownership Percentage: 15% of the total equity of TSL, to be issued to BMC at the closing of the exchange.
• Dilution Impact on Existing Shareholders: The issuance of equity to BMC will dilute the holdings of all existing shareholders of TSL on a pro rata basis. The current shareholder composition and the post-exchange dilution impact are summarized as follows:
• Minority Protections and Governance Rights: The equity to be issued to BMC will carry customary minority protections and governance rights, the specific terms of which are to be negotiated as part of the definitive documentation process. TSL anticipates that these protections would include, at a minimum, one board observer seat or one board seat (to be discussed), customary information rights, anti-dilution protections, and consent rights over specified material transactions affecting BMC's interest.
• Transfer Restrictions: During the RSA implementation period, BMC's equity interest (and its existing mezzanine notes, pending the closing of the exchange) would be subject to a lock-up agreement restricting transfers, the terms of which will be discussed in connection with the RSA negotiation. TSL anticipates that following the closing of the exchange, any ongoing transfer restrictions on the new equity would be limited and customary for a private company equity investment of this nature.
D. Rationale and Value Proposition for BMC
TSL recognizes that the proposed exchange requires BMC to accept a significant reduction in the face amount of its debt claim, and that such a concession must be justified by a commensurate value proposition. TSL and its advisors believe that the proposed exchange offers BMC the following benefits:
1. Blended Recovery Exceeding Chapter 11 Alternative. The exchange provides BMC with a blended recovery consisting of $60,000,000 in new secured debt plus a 15% equity stake in a reorganized TSL. When the equity upside is considered alongside the new debt, the total package is intended to exceed the estimated Chapter 11 recovery of approximately 62.3% at midpoint enterprise value. We note that in a Chapter 11 scenario, administrative costs, DIP financing charges, and other value-eroding expenses would reduce the amount available for distribution to mezzanine creditors below the theoretical waterfall recovery. As set forth in Section V below, estimated first-year Chapter 11 administrative costs alone would be approximately $18,500,000, reducing the residual value available to BMC before any other sources of value leakage are taken into account.
2. Equity upside Participation. The 15% equity stake provides BMC with meaningful participation in the potential recovery of TSL's enterprise value. The dry-bulk shipping market is cyclical, and leading industry analysts project a recovery in charter rates beginning in late 2024 or 2025, driven by a tightening of vessel supply as the global orderbook remains at historically low levels. If charter rates recover to levels approximating the mid-cycle average, the enterprise value of TSL could increase substantially, providing significant value accretion to BMC's equity position. This optionality is not available in a debt-only recovery.
3. Extended Maturity and Operational Runway. The extension of maturity from December 15, 2024 to June 2028 provides significantly more runway for TSL to execute on its business plan, complete the planned vessel dispositions, and benefit from a cyclical recovery in the shipping markets. Under the current maturity, the mezzanine notes would come due in less than two years under market conditions that make refinancing extremely challenging. The extended maturity eliminates this near-term cliff risk.
4. Avoidance of Chapter 11 Costs and Disruption. A successful out-of-court restructuring preserves going-concern value, avoids estimated administrative costs of $18,500,000 in the first twelve months of a Chapter 11 case, and mitigates operational disruption to TSL's fleet and logistics business. In-court proceedings in the maritime sector carry particular risks, including potential counterparty termination rights under certain charter party arrangements, loss of commercial relationships, and regulatory complications in multiple jurisdictions.
5. Improved Second-Lien Cushion Through Vessel Dispositions. As part of the broader restructuring, TSL has agreed to sell six older dry-bulk carriers (average age of approximately 18 years) within twelve months of the closing of the restructuring, for estimated aggregate proceeds of approximately $72,000,000. Net proceeds from these dispositions will be applied to prepay Term Loan A, thereby reducing the quantum of first-lien debt senior to BMC's second-lien position. All else being equal, a $72,000,000 reduction in senior-lien debt would substantially increase the residual value cushion protecting BMC's $60,000,000 of new second-lien notes.
IV. Context Within the Broader Restructuring — RSA Framework
The proposed mezzanine exchange is one component of a comprehensive out-of-court restructuring that TSL is negotiating with its principal creditor constituencies. The other major elements of the restructuring are summarized below, to provide BMC with full context regarding the overall framework.
A. Senior Secured Facility Amendment
TSL is in advanced negotiations with the Ad Hoc Group of Senior Secured Lenders regarding an amendment to the Senior Secured Credit Agreement. The Ad Hoc Group consists of Nordbank International AG, Harborstone Bank, Triton Credit Partners, and Continental Maritime Lending, which collectively hold approximately $372,000,000, or 54.3%, of the $685,000,000 total facility commitments (and approximately 68.9% of the $540,000,000 outstanding). The Ad Hoc Group is advised by Whitfield, Crane & Burgess LLP (Graham Whitfield III, lead partner) and Draycott Advisory Group LLC (Vanessa Chow, Managing Director).
The principal terms of the proposed amendment (to be documented as Amendment No. 1 to the Senior Secured Credit Agreement) are as follows:
• Maturity Extension: The maturity of the Senior Secured Credit Facility will be extended from June 15, 2024 to June 15, 2027, providing an additional three years of runway.
• PIK Conversion: $75,000,000 of outstanding Term Loan A principal will be converted to PIK, reducing near-term cash debt service obligations and improving TSL's free cash flow during the restructuring implementation period.
• Revolver Commitment Reduction: The revolving credit facility commitment will be reduced from $200,000,000 to $150,000,000, reflecting the reduced availability needs of the business following the vessel dispositions and cost restructuring measures being implemented by management.
• Financial Covenant Reset: The financial maintenance covenants will be reset as follows:
(i) Maximum Net Leverage Ratio: Reset to 7.00x, stepping down to 6.25x by Q2 2025 and to 5.50x by Q4 2025;
(ii) Minimum Liquidity: Reduced from $40,000,000 to $30,000,000; and
(iii) Minimum Interest Coverage Ratio: Waived through Q4 2023, stepping back in at 1.75x in Q1 2024 and increasing to 2.50x by Q4 2025.
• Amendment Fee: 1.00% of outstanding principal under the facility ($540,000,000 × 1.00% = $5,400,000), payable in kind by capitalizing the fee amount onto the outstanding principal balance.
• Default Interest Waiver: Default interest accruing since the occurrence of the events of default (at a rate of SOFR + 575 basis points) will be waived retroactively as a condition of the amendment.
B. Unsecured Notes
The $50,000,000 of Senior Unsecured Notes due March 1, 2025 are proposed to remain unimpaired under the restructuring. The missed December 2022 coupon payment of $2,062,500 will be paid in full in cash at the closing of the restructuring. No modification to the unsecured notes indenture is proposed. Counsel to the informal group of unsecured noteholders is Ashford, Brightmoor Group & McKay PC (Carolyn Brightmoor Group, partner).
C. Trade Creditors
Approximately $38,700,000 in outstanding trade payables will be paid in full in the ordinary course of business. No impairment of trade claims is contemplated. TSL recognizes the critical importance of maintaining its commercial relationships with key vendors and service providers, particularly fuel suppliers, port operators, and drydocking facilities, and any impairment of trade claims would risk significant operational disruption.
D. Equity Contribution
KFO Holdings SA, the family holding company controlled by Dimitrios Kostandinos (62%) and Elena Kostandinos-Pavlou (18%), has agreed to contribute €35,000,000 (approximately $38,200,000 at the current exchange rate of €1 = $1.0914 as of the date hereof) in new equity to TSL. The new equity contribution will be used to fund working capital and liquidity needs during the restructuring implementation period and to pay transaction costs associated with the restructuring (including professional fees, amendment fees, and other closing costs). The equity contribution will be documented in an Equity Subscription Agreement to be executed at the closing of the restructuring.
E. Intercompany Note
The $76,400,000 subordinated intercompany note from TAI to TSL will be modified as follows: (i) the maturity will be extended from its current scheduled maturity to December 2028; and (ii) the interest rate will be reduced from 5.0% per annum to 2.0% per annum. These modifications are designed to reduce TAI's cash debt service burden and to ensure that the intercompany obligations remain fully subordinated to all external indebtedness.
F. Vessel Dispositions
As referenced in Section III.D above, TSL will commit to sell six older dry-bulk carriers within twelve months of the closing of the restructuring. The six vessels have been identified by management and KHP as non-core assets with an average age of approximately 18 years, placing them at or near the end of their economically useful lives under current market conditions. The estimated aggregate sale proceeds are approximately $72,000,000, based on broker estimates obtained by TSL in December 2022 and January 2023. Net proceeds from the vessel dispositions, after deduction of sale costs and any outstanding vessel-level obligations, will be applied to prepay outstanding Term Loan A principal on a dollar-for-dollar basis.
G. Amended and Restated Intercreditor Agreement
The existing Intercreditor Agreement dated June 15, 2019, between Nordbank International AG (as first-lien agent) and BMC, will be amended and restated to reflect the terms of the new second-lien notes, the reduced second-lien quantum ($60,000,000 in lieu of $112,300,000), and such other modifications as are necessary to conform to the restructured capital structure. The Amended and Restated Intercreditor Agreement will be a key component of the definitive documentation and will be subject to negotiation among Calderwood & Harkness (on behalf of TSL), Whitfield, Crane & Burgess (on behalf of the Ad Hoc Group), and Kellner & Foss (on behalf of BMC).
V. Chapter 11 Alternative — Context for BMC
While TSL strongly prefers the out-of-court restructuring path and believes it represents the value-maximizing outcome for all stakeholders, TSL has, as a matter of prudent contingency planning, prepared a comprehensive Chapter 11 plan in the event that a consensual out-of-court resolution cannot be achieved.
The key parameters of the Chapter 11 contingency plan are as follows:
• Filing Entity and Venue: TAI would be the primary filing entity, with a proposed filing venue in the United States Bankruptcy Court for the Southern District of Texas (Houston Division). The Houston venue is appropriate given the location of TAI's principal U.S. operations, including the Houston terminal, and the Southern District of Texas's extensive experience with large, complex maritime and energy restructurings.
• DIP Financing: A DIP financing term sheet for a $75,000,000 superpriority debtor-in-possession facility has been received from Nordbank International AG and Triton Credit Partners, on the following indicative terms: interest rate of SOFR + 600 basis points; commitment fee of 0.50%; maturity of 12 months from the petition date; and superpriority administrative expense and priming lien status. The DIP facility would provide TAI with the liquidity necessary to fund operations and the Chapter 11 process during the pendency of the case.
• Estimated Chapter 11 Administrative Costs (First 12 Months): $18,500,000, consisting of legal fees for the debtor, the official committee of unsecured creditors, and other retained professionals; financial advisory fees (including investment banker, restructuring advisor, and claims agent fees); CRO compensation; United States Trustee quarterly fees; and other administrative expenses customary in a case of this size and complexity. These costs represent a significant source of value leakage that reduces the amount available for distribution to creditors, particularly junior creditors such as the mezzanine noteholders.
• Chief Restructuring Officer: CRO services have been arranged on a standby basis with Alderney Management Advisors LLC. Richard "Rick" Thornberg, a senior managing director at Alderney with extensive experience in maritime and transportation restructurings, has been designated as the CRO and would assume the role upon a Chapter 11 filing.
• Impact on Mezzanine Recovery: In a Chapter 11 scenario, the mezzanine notes, as the fulcrum security, would likely be subject to a plan of reorganization treatment that could include a conversion of some or all of the mezzanine claim into equity of the reorganized debtor, with or without a new debt component. Critically, the estimated $18,500,000 in first-year administrative costs, combined with DIP financing costs, the superpriority status of the DIP claims, and other administrative expenses, would erode the value available for distribution to mezzanine creditors below the theoretical recovery calculated in Section II.F above. Moreover, the Chapter 11 process would involve substantial timing uncertainty—a contested case could take 12 to 18 months or longer—during which period fleet values could continue to deteriorate, further diminishing the recovery available to BMC.
The out-of-court path, by contrast, avoids these significant costs, preserves management continuity and commercial relationships, and allows TSL to execute on its operational restructuring plan without the disruption and stigma associated with a bankruptcy filing. TSL firmly believes that the proposed exchange described in Section III above provides BMC with a superior risk-adjusted recovery compared to the Chapter 11 alternative.
VI. Timeline and Process
Time is of the essence. The current forbearance standstill runs through March 8, 2023 (as extended pursuant to the First Amendment to Forbearance Agreement executed on January 8, 2023). While the possibility of a further extension exists, it is contingent on continued progress toward a consensual restructuring, and there can be no assurance that the senior lenders will agree to a further extension absent demonstrable momentum toward a binding agreement.
The key milestones in the restructuring timeline are as follows:
• RSA Term Sheet Circulation: A formal term sheet for the comprehensive Restructuring Support Agreement ("RSA") is expected to be circulated to all creditor groups by approximately February 10, 2023.
• RSA Execution Target: TSL is targeting execution of the RSA, binding all major creditor constituencies (including the Ad Hoc Group of Senior Secured Lenders, BMC, and the informal group of unsecured noteholders), by mid-March 2023.
• Definitive Documentation: Upon execution of the RSA, the parties would work to finalize definitive documentation, including:
(i) Amendment No. 1 to the Senior Secured Credit Agreement; (ii) New Second-Lien Note Purchase Agreement; (iii) New Second-Lien Notes Indenture; (iv) Amended and Restated Intercreditor Agreement; (v) Equity Subscription Agreement (KFO Holdings SA equity contribution); (vi) BMC Equity Issuance Agreement and related governance documents; (vii) Lock-Up Agreement; and (viii) Ancillary documents and closing deliverables.
The target for completion of definitive documentation is approximately May 2023.
• RSA Closing / Effective Date: The target closing and effective date for the restructuring is June 30, 2023.
• Lock-Up Agreement: A lock-up agreement with BMC would be executed concurrently with the RSA. The lock-up would restrict BMC from transferring, selling, assigning, or otherwise disposing of (i) the existing mezzanine notes during the period between RSA execution and the closing of the exchange, and (ii) the new equity and new second-lien notes for a specified period following closing (to be negotiated). The lock-up agreement would also contain customary commitments by BMC to support the restructuring, vote in favor of any required consents or approvals, and refrain from taking any action inconsistent with the RSA.
• BMC Response Requested: We respectfully request that BMC provide its initial response to this proposal and confirm its willingness to engage on these terms by no later than February 17, 2023. This timeline is necessary to maintain the overall restructuring schedule and to ensure that TSL can demonstrate sufficient progress to the senior lenders in advance of the March 8, 2023 forbearance deadline.
VII. Confidentiality
This letter and the proposal contained herein are strictly confidential and are being transmitted solely for purposes of settlement discussions between the parties. The contents of this letter are protected by Federal Rule of Evidence 408 and any applicable state law equivalents, and are not to be construed as an admission of any fact, liability, or obligation by TSL, TAI, or any of their respective affiliates, officers, directors, or advisors.
We respectfully request that the contents of this letter and the terms of the proposed exchange not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP, except as may be necessary for BMC's internal evaluation and decision-making processes and as may be shared with BMC's counsel, Kellner & Foss LLP, in connection with such evaluation. The proposal and all related communications are also subject to the confidentiality provisions set forth in Section 12 of the Forbearance Agreement dated October 10, 2022 (as amended), and we expect all parties to comply with those provisions in full.
VIII. Invitation to Discuss and Next Steps
We recognize that this is a detailed and significant proposal, and we welcome the opportunity to discuss it with you and with BMC in detail. We would propose a call or in-person meeting among Kellner & Foss, Calderwood & Harkness, and the respective financial advisors—KHP on the TSL side, and Draycott Advisory Group if engaged by the Ad Hoc Group, or any financial advisor separately retained by BMC—to walk through the proposal, answer questions, and begin the process of negotiating toward agreed terms.
In connection with such a discussion, TSL is prepared to provide additional financial information and supporting analysis prepared by Kensington Veltrian Partners, including:
• The 13-week cash flow model for TSL and TAI;
• The detailed enterprise valuation analysis, including the discounted cash flow model, comparable company analysis, and precedent transaction analysis;
• The recovery waterfall analysis for each creditor class under both the out-of-court and Chapter 11 scenarios; and
• Such other financial data and projections as BMC may reasonably request, subject to appropriate confidentiality protections.
We would appreciate receiving BMC's initial reaction to the proposal, any questions BMC may have regarding the terms or the underlying financial analysis, and, to the extent BMC wishes to make a counterproposal, the principal terms of any alternative structure that BMC would find acceptable. Early engagement on these issues will allow the parties to identify areas of agreement and narrow any points of divergence efficiently.
We look forward to working constructively with you and BMC to reach agreement on these terms as part of the broader restructuring of TSL and TAI. We believe that the proposed exchange represents a fair and value-maximizing outcome for BMC, and we are committed to engaging in good faith to address any concerns that BMC may have.
Please do not hesitate to contact me at (212) 554-7218 or achesterton@calderwoodharkness.com, or Nathaniel Bower at (212) 554-7104 or nbower@calderwoodharkness.com, to discuss.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Amy Chesterton Partner
780 Third Avenue New York, NY 10017 Tel: (212) 554-7218
Email: achesterton@calderwoodharkness.com
cc: (via email)
Nathaniel Bower, Esq., Calderwood & Harkness LLP Colette Whitman, Esq., Calderwood & Harkness LLP James Calloway, Managing Director, Kensington Veltrian Partners LLC Georgios Andreadis, Chief Executive Officer, Thalassa Shipping & Logistics SA Irini Dalakoura, Chief Financial Officer, Thalassa Shipping & Logistics SA Marcus Hale, President, Thalassa Americas Inc. Samantha Ong, Esq., Kellner & Foss LLP
Enclosures: None. Supporting financial analyses, including the 13-week cash flow model and enterprise valuation analysis prepared by Kensington Veltrian Partners LLC, will be provided upon request or in connection with a follow-up discussion among the parties.
Vessel Category | Number of Vessels | Appraised Value (Nov. 2022)
Capesize dry-bulk carriers | 10 | $215,000,000
Panamax dry-bulk carriers | 14 | $182,000,000
Supramax dry-bulk carriers | 14 | $128,000,000
Sub-Panamax container vessels | 12 | $98,000,000
Total | 50 | $623,000,000
Shareholder | Current Ownership | Post-Exchange Ownership
KFO Holdings SA (Dimitrios Kostandinos — 62%; Elena Kostandinos-Pavlou — 18%) | 80% | 68% (80% × 85%)
Other non-family holders | 20% | 17% (20% × 85%)
BMC | 0% | 15%
Total | 100% | 100%

CONFIDENTIAL — FOR SETTLEMENT DISCUSSION PURPOSES ONLY

CALDERWOOD & HARKNESS LLP

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