CALDERWOOD & HARKNESS LLP Attorneys at Law 780 Third Avenue New York, New York 10017
Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
July 10, 2023
VIA ELECTRONIC MAIL AND Sundial Data Systems
Laura Pendleton, President Pendleton Claim Services Inc. 1601 Elm Street, Suite 4200 Dallas, Texas 75201
Re: Termination of Standby Engagement for Claims and Noticing Agent Services — Thalassa Shipping & Logistics SA / Thalassa Americas Inc. (C&H Matter No. 1044-00003)
Dear Ms. Pendleton:
This firm represents Thalassa Shipping & Logistics Société Anonyme ("TSL"), a société anonyme organized under the laws of the Hellenic Republic, and its wholly-owned Delaware subsidiary, Thalassa Americas Inc. ("TAI" and, together with TSL, the "Companies"), in connection with certain restructuring and related matters. We write on behalf of our clients to address the status of the standby engagement between Pendleton Claim Services Inc. ("Pendleton") and the Companies, and to provide formal notice of the termination thereof, as more fully described below.
As you are aware, Calderwood & Harkness LLP ("C&H"), acting as counsel to TSL and TAI, and Pendleton entered into that certain Standby Engagement Letter dated November 15, 2022 (the "Standby Engagement Letter"), pursuant to which Pendleton was engaged on a standby basis to serve as claims and noticing agent in the event that TAI commenced a voluntary case under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. The purpose of this letter is to formally notify Pendleton that the standby engagement contemplated by the Standby Engagement Letter is hereby terminated in its entirety, effective as of the date hereof, July 10, 2023, for the reasons set forth below.
I. Background on the Engagement and the Chapter 11 Contingency
By way of background, and to provide a complete record in connection with the termination of the standby engagement, we briefly summarize the circumstances that gave rise to Pendleton's engagement.
At the time the Standby Engagement Letter was executed, TSL and TAI were experiencing a severe liquidity crisis driven principally by a precipitous decline in dry-bulk charter rates across the global shipping market. This adverse market environment placed extraordinary pressure on the Companies' cash flows and balance sheet, ultimately resulting in a series of covenant breaches under that certain Senior Secured Credit Facility, dated as of June 15, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Facility"), among TSL, as borrower, certain of its subsidiaries, as guarantors, the lenders party thereto from time to time, and Nordbank International AG, as administrative agent and collateral agent. The Credit Facility provided for aggregate commitments of $685 million, consisting of term loan and revolving credit facilities.
Specifically, TSL breached the Minimum Liquidity Covenant set forth in Section 7.11(a) of the Credit Facility on September 15, 2022, when TSL's unrestricted cash and cash equivalents declined to approximately $27.3 million, representing a shortfall of $12.7 million against the required minimum of $40 million. Thereafter, as of the fiscal quarter ending September 30, 2022, TSL also breached its Maximum Net Leverage Ratio, which stood at 7.82 to 1.00 against the permitted maximum of 5.50 to 1.00, and its Minimum Interest Coverage Ratio, which measured at 1.74 to 1.00 against the required minimum of 2.50 to 1.00. Each of these breaches constituted an Event of Default under Section 8.01 of the Credit Facility.
In response to these Events of Default, TSL, the requisite lenders, and Nordbank International AG, as administrative agent, entered into that certain Forbearance Agreement, dated as of October 10, 2022 (the "Forbearance Agreement"), pursuant to which the lenders agreed to forbear from exercising their rights and remedies under the Credit Facility for an initial period of ninety (90) days. The Forbearance Agreement was subsequently extended on two occasions — first, to March 8, 2023, pursuant to the First Amendment to Forbearance Agreement dated January 6, 2023, and then to April 7, 2023, pursuant to the Second Amendment to Forbearance Agreement dated March 3, 2023 — in order to provide the Companies with additional time to pursue both in-court and out-of-court restructuring alternatives.
Calderwood & Harkness was formally engaged by the Companies on October 25, 2022, to prepare a comprehensive Chapter 11 contingency plan for TAI as the Companies' primary U.S. operating subsidiary, while simultaneously advising the Companies in connection with the negotiation of a potential out-of-court restructuring alternative. The engagement of Pendleton was a critical element of the Chapter 11 contingency planning effort. The standby arrangement was designed to ensure that claims and noticing agent services would be immediately available — including the ability to prepare and file the creditor matrix, serve required notices, and administer proofs of claim — in the event that the Companies' board of directors authorized the filing of a voluntary petition under Chapter 11 of the Bankruptcy Code. We note that Pendleton's responsiveness and cooperation during the engagement period were commendable and reflected the professionalism for which your firm is well regarded.
II. Resolution of the Restructuring — The Out-of-Court Restructuring Support Agreement
We are pleased to advise that the contemplated Chapter 11 filing has been averted. After extensive negotiations involving multiple creditor constituencies, TSL and TAI, together with the requisite lenders under the Credit Facility, Dralvecen Mezzanine Capital LLC ("Dralvecen"), and KFO Holdings SA ("KFO Holdings," the Kostandinos family holding company and controlling shareholder of TSL), successfully negotiated and executed that certain Restructuring Support Agreement, dated as of March 14, 2023 (the "RSA"), which set forth the terms and conditions of a comprehensive out-of-court restructuring of the Companies' capital structure.
The RSA provided for, among other things, the following principal restructuring transactions:
(i) Amendment and Extension of the Senior Secured Credit Facility. The maturity date of the Credit Facility was extended from June 15, 2024 to June 15, 2027. In connection therewith, $75 million in aggregate principal amount of Term Loan A was converted from cash-pay to payment-in-kind ("PIK") interest for the first eighteen (18) months following the effective date, the revolving credit commitment was reduced from $200 million to $150 million, and the financial covenants were reset to levels reflective of the Companies' revised business plan and projected financial performance, including a revised Maximum Net Leverage Ratio stepping down from 7.50x to 5.00x over the extended term and a revised Minimum Interest Coverage Ratio stepping up from 1.50x to 2.50x over the same period.
(ii) Exchange of Mezzanine Notes. Approximately $112.3 million in aggregate principal amount of mezzanine notes held by Dralvecen were exchanged for (a) $60 million in aggregate principal amount of newly issued second-lien secured notes bearing interest at a rate of SOFR plus 750 basis points (with a 2.00% SOFR floor) and maturing on December 15, 2027, and (b) 15% of the fully diluted equity interests in TSL, representing a significant deleveraging of the Companies' balance sheet and a meaningful reduction of the Companies' annual cash interest expense.
(iii) Equity Contribution. KFO Holdings contributed €35 million in new equity capital to TSL, the proceeds of which were used to restore minimum liquidity levels, fund transaction costs, and provide additional working capital for the Companies' ongoing operations.
(iv) Ancillary Transactions. Certain other ancillary transactions were consummated in connection with the foregoing, including the entry into amended intercreditor agreements, the grant of additional collateral in favor of the second-lien noteholders, the execution of updated guaranty agreements, and the adoption of a revised management incentive plan.
We are pleased to report that the RSA closed on its outside date of June 30, 2023, with all conditions precedent to closing having been satisfied or waived in accordance with the terms thereof, and all transaction documents having been duly executed and delivered by the respective parties thereto. The restructuring has been fully consummated, the Events of Default under the Credit Facility have been cured, and the Companies' liquidity position has been restored to levels that management and the board of directors believe are adequate to support the Companies' operations for the foreseeable future.
As a result of the successful consummation of the out-of-court restructuring, there is no longer any prospect that TAI will file a voluntary petition under Chapter 11 of the Bankruptcy Code in connection with the matters for which Pendleton's standby services were engaged. Accordingly, the standby engagement is no longer necessary and should be terminated, as set forth in the following section.
III. Formal Termination of the Standby Engagement
Pursuant to the termination provisions set forth in Section 8 of the Standby Engagement Letter dated November 15, 2022, Calderwood & Harkness LLP, acting on behalf of TSL and TAI and with the full authority of the Companies, hereby formally terminates the standby engagement in its entirety, effective as of July 10, 2023. Upon the effective date of this termination, Pendleton shall have no further obligations to hold itself in readiness to provide claims and noticing agent services to TAI or any of its affiliates in connection with the matters described in the Standby Engagement Letter, and neither TSL, TAI, nor C&H shall have any further obligations to Pendleton thereunder, except as expressly noted herein with respect to confidentiality obligations.
For the avoidance of doubt, we confirm the following:
(a) Pendleton's services as claims and noticing agent were never activated at any point during the term of the standby engagement. No activation notice was issued by C&H or the Companies, and no Chapter 11 petition was filed by or on behalf of TAI in any court.
(b) No claims processing, noticing, balloting, solicitation, or other substantive services of any kind were performed by Pendleton, nor were any such services requested by TSL, TAI, or C&H under the Standby Engagement Letter at any time during the term of the engagement.
(c) No court filings, applications for appointment, or other judicial proceedings were initiated in connection with Pendleton's potential service as claims and noticing agent.
IV. Confirmation That No Amounts Are Owed
We further confirm that, based on our records and the terms of the Standby Engagement Letter, no fees, costs, expenses, reimbursements, or other amounts of any kind are due or owing to Pendleton by TSL, TAI, C&H, or any other party under or in connection with the Standby Engagement Letter. Because the engagement remained in standby status at all times and was never activated, and because the Standby Engagement Letter provided that fees and expenses would accrue only upon activation and the commencement of services, no invoices have been submitted by Pendleton and no payment obligations have accrued in favor of Pendleton.
We respectfully request that Pendleton confirm in writing — whether by countersigning and returning a copy of this letter in the space provided below, or by separate correspondence directed to our attention — that Pendleton agrees that (i) no fees, costs, expenses, or other amounts are due or owing to Pendleton under the Standby Engagement Letter or otherwise in connection with the standby engagement, (ii) Pendleton considers the standby engagement to be fully and finally terminated as of the date hereof, and (iii) there are no surviving obligations on the part of either party under the Standby Engagement Letter, other than confidentiality obligations as described in Section V below. We would appreciate receiving such written confirmation at your earliest convenience, but in no event later than thirty (30) days from the date of this letter.
V. Return or Destruction of Confidential Information
We remind Pendleton of its confidentiality obligations under Section 6 of the Standby Engagement Letter, which, among other things, required Pendleton to maintain in strict confidence all non-public information received in connection with the standby engagement and to use such information solely for the purposes contemplated by the engagement.
To the extent that Pendleton received any confidential, proprietary, or privileged information relating to TSL, TAI, or the restructuring during the course of the standby engagement — including, without limitation, corporate organizational structure charts, creditor lists and matrices, financial statements, projections, cash flow models, business plans, draft petition materials, draft first day motions, schedules of assets and liabilities, or any other documents or data furnished by or on behalf of the Companies or C&H — we hereby request that Pendleton promptly either (a) return all such materials (including all copies, summaries, and extracts thereof) to our offices at the address set forth above, or (b) permanently destroy all such materials (including all copies, summaries, and extracts thereof, whether in physical or electronic form), and in either case provide written certification to us confirming that such return or destruction has been completed.
Please note that the confidentiality obligations set forth in Section 6 of the Standby Engagement Letter expressly survive the termination of the engagement and shall remain in full force and effect in accordance with their terms, notwithstanding the termination effected by this letter.
VI. Acknowledgments and Contact Information
On behalf of TSL, TAI, and Calderwood & Harkness, we wish to express our sincere appreciation for Pendleton's willingness to serve on a standby basis throughout the contingency planning period and for Pendleton's readiness to mobilize its team and systems on short notice had a Chapter 11 filing become necessary. Your firm's professionalism and preparedness provided significant comfort to the Companies and their stakeholders during a period of considerable uncertainty, and we are grateful for the collaborative relationship maintained throughout the engagement.
For your records, please note that C&H Matter No. 1044-00003, relating to the Thalassa Shipping & Logistics restructuring, is being designated as dormant in our matter management system effective as of July 15, 2023.
Should you have any questions regarding this termination or any of the foregoing matters, please do not hesitate to contact the undersigned, Amy Chesterton, Lead Associate, Calderwood & Harkness LLP, at 780 Third Avenue, New York, New York 10017, telephone (212) 558-4127, email achesterton@calderwoodharkness.com, or Nathaniel Bower, Responsible Partner, at the same address, telephone (212) 558-4350, email nbower@calderwoodharkness.com.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Amy Chesterton Lead Associate Bankruptcy & Restructuring Group 780 Third Avenue New York, New York 10017 Telephone: (212) 558-4127
Email: achesterton@calderwoodharkness.com
ACKNOWLEDGED AND AGREED:
The undersigned hereby confirms that (i) no amounts are due or owing to Pendleton Claim Services Inc. under the Standby Engagement Letter dated November 15, 2022, (ii) the standby engagement is fully and finally terminated as of July 10, 2023, and (iii) there are no surviving obligations under the Standby Engagement Letter other than confidentiality obligations.
PENDLETON CLAIM SERVICES INC.
By: ________
Name: Laura Pendleton
Title: President
Date: ________
cc:
Nathaniel Bower, Esq., Partner, Calderwood & Harkness LLP
Colette Whitman, Esq., Partner, Calderwood & Harkness LLP
Marcus Hale, President, Thalassa Americas Inc., 1400 McKinney Street, Suite 2200, Houston, Texas 77010
Irini Dalakoura, Chief Financial Officer, Thalassa Shipping & Logistics SA, 42 Akti Miaouli, Piraeus 18538, Greece
Encl.: None