PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / WORK PRODUCT DOCTRINE
MEMORANDUM
CALDERWOOD & HARKNESS LLP 780 Third Avenue New York, New York 10017
Matter No.: 1044-00003
Date: November 2, 2022
To: Nathaniel Bower, Partner, Bankruptcy & Restructuring
From: Amy Chesterton, Lead Associate, Bankruptcy & Restructuring; Nathan Ikeda, Associate, Bankruptcy & Restructuring
Re: Preliminary Assessment of Chapter 11 Viability and Venue Analysis — Thalassa Americas Inc.
This memorandum has been prepared by Calderwood & Harkness LLP at the direction of, and for the exclusive use of, Thalassa Shipping & Logistics Société Anonyme and Thalassa Americas Inc. It is protected by the attorney-client privilege and the work product doctrine. This document is not to be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and the clients. Inadvertent disclosure does not constitute a waiver of any privilege or protection.
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I. Executive Summary
This memorandum assesses the viability of a Chapter 11 filing by Thalassa Americas Inc. ("TAI"), the wholly-owned Delaware C-Corporation subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"), and recommends an optimal filing venue in the event that such a filing becomes necessary. This analysis has been prepared at the request of Nathaniel Bower, Partner, Bankruptcy & Restructuring, as part of the dual-track approach authorized by TSL's Chairman, Dimitrios Kostandinos, and CEO, Georgios Andreadis.
Eligibility. Based on our analysis, TAI is eligible for Chapter 11 relief under 11 U.S.C. §109. TAI is a Delaware C-Corporation with its principal place of business at 1400 McKinney Street, Suite 2200, Houston, TX 77010. It qualifies as a "person" under §101(41) of the Bankruptcy Code, maintains its domicile, place of business, and property within the United States, and is not among the categories of entities excluded from Chapter 11 eligibility. While neither balance-sheet nor cash-flow insolvency is a prerequisite to filing, both conditions are present here, as demonstrated by the covenant breaches detailed below and the significant gap between TAI's liabilities and the enterprise value attributable to its operations.
Recommended Venue. We recommend that any Chapter 11 petition be filed in the United States Bankruptcy Court for the Southern District of Texas (Houston Division). Venue is proper under 28 U.S.C. §1408(1) because TAI's principal place of business has been located in Houston, Texas for well in excess of the 180-day look-back period. The Houston venue offers significant practical advantages, including proximity to TAI's operations, management, employees, and key assets, as well as a bench with considerable experience adjudicating complex Chapter 11 cases in the shipping and energy sectors. We have evaluated the District of Delaware and the Southern District of New York as alternative venues, and neither is recommended for the reasons discussed in detail in Section IV below.
Filing Scope. The contemplated filing would be limited to TAI as the sole debtor entity. The Greek parent, TSL, would remain outside the Chapter 11 proceeding. TSL is a Greek Société Anonyme, not organized or domiciled in the United States, and any insolvency proceeding involving TSL would be commenced under Greek law — specifically, Law 4738/2020 on debt resolution and second-chance mechanisms. Should TSL commence such a proceeding, recognition in the United States could be sought through a separate Chapter 15 petition. A forthcoming memorandum, to be prepared by Nathan Ikeda, will address the COMI analysis and Chapter 15 recognition issues in detail. The 14 vessel-owning SPVs, all organized outside the United States, and KFO Holdings Société Anonyme, the Kostandinos family holding company, would likewise not be filing entities.
Context and Timing. The Chapter 11 filing is contemplated as a contingency measure in the event that ongoing out-of-court restructuring negotiations with the secured lender syndicate and other creditor constituencies do not produce a consensual resolution. A Forbearance Agreement was executed on October 10, 2022, providing a 90-day standstill period through January 8, 2023. This window affords the time necessary to develop the Chapter 11 contingency plan in parallel with the negotiation of out-of-court alternatives. The dual-track approach preserves optionality and maximizes TAI's and TSL's leverage in ongoing discussions with creditors.
The balance of this memorandum provides the detailed factual background, legal analysis, and preliminary operational parameters necessary to inform the decision whether and when to proceed with a Chapter 11 filing.
II. Background and Factual Context
A. Corporate Structure and Business Overview
Thalassa Shipping & Logistics Société Anonyme ("TSL") is a shipping and logistics company organized under the laws of the Hellenic Republic (Greece) and registered with the Athens General Commercial Registry (Γ.Ε.ΜΗ.). TSL maintains its headquarters at 42 Akti Miaouli, Piraeus 18538, Greece, in the heart of Greece's maritime commercial district. The company was founded in 1987 by the Kostandinos family and has grown over the past three and a half decades from a regional operator of two secondhand dry-bulk carriers into a significant participant in the international shipping and logistics industry.
Fleet and Operations. TSL currently owns and operates a fleet of 50 vessels, comprising 38 dry-bulk carriers and 12 container vessels. The company provides integrated port-to-door logistics services across a network spanning the Mediterranean Sea, the Black Sea, and transatlantic trade lanes. In addition to its ocean-going fleet, TSL operates terminal facilities at Piraeus, Thessaloniki, and Houston, Texas. These terminal operations provide critical connectivity between the sea-borne and land-based segments of TSL's logistics chain and represent a significant portion of the company's revenue base and asset value.
Financial Performance. TSL reported consolidated revenue of approximately €1.42 billion for fiscal year 2021 ("FY2021"). For fiscal year 2022 ("FY2022"), estimated consolidated revenue has declined to approximately €987 million, representing a decline of approximately 30.5% year-over-year. This decline is attributable to the sharp deterioration in the dry-bulk shipping market, as discussed in Section II.C below, as well as softening demand on key transatlantic container trade lanes.
Employees. TSL employs approximately 4,200 individuals globally, including shore-based staff in Greece, the United States, and other jurisdictions, as well as sea-going personnel. Approximately 680 employees are based in the United States, the vast majority of whom work for TAI or under TAI's operational management at the Houston terminal and Houston headquarters.
Equity Ownership. The Kostandinos family controls 80% of TSL's outstanding equity through KFO Holdings Société Anonyme, a Greek holding company. Within KFO Holdings, Dimitrios Kostandinos holds a 62% indirect equity interest in TSL, and his sister, Elena Kostandinos-Pavlou, holds an 18% indirect equity interest. The remaining 20% of TSL's outstanding equity is held by non-family shareholders, comprising a mix of institutional investors and former management participants. TSL's equity is not publicly traded.
B. Thalassa Americas Inc. (Potential Filing Entity)
Thalassa Americas Inc. ("TAI") is the entity under consideration for a potential Chapter 11 filing. TAI's key corporate and operational details are as follows:
• Full Legal Name: Thalassa Americas Inc.
• Entity Type: Delaware corporation (C-Corporation)
• Jurisdiction of Organization: State of Delaware
• Registered Agent: Capitol Registered Agents LLC, 1209 Orange Street, Wilmington, Delaware 19801
• Principal Office: 1400 McKinney Street, Suite 2200, Houston, Texas 77010
• Employer Identification Number (EIN): 84-3291057
• Parent Entity: Thalassa Shipping & Logistics Société Anonyme (TSL) — 100% equity owner
TAI serves as the primary vehicle for TSL's United States-side operations. Its business activities encompass three principal functions: (i) Houston terminal operations, including the management and operation of TSL's terminal facility in the Port of Houston, which handles cargo loading, unloading, storage, and intermodal transfer; (ii) Jones Act–exempt foreign-flag vessel scheduling, coordinating the deployment of TSL's foreign-flagged vessels on transatlantic routes calling at U.S. ports; and (iii) domestic freight brokerage, arranging and managing inland transportation of cargo within the United States on behalf of TSL's customers and third-party shippers.
Financial Performance. TAI reported revenue of approximately $312 million for FY2021. For FY2022, estimated revenue has declined to approximately $198 million, reflecting the broader downturn in shipping volumes and the specific impact of reduced transatlantic trade activity on TAI's terminal throughput and brokerage volumes. TAI's revenue represents the U.S.-dollar-denominated portion of TSL's consolidated operations and is predominantly generated through the Houston terminal and domestic brokerage activities.
Officers. TAI's current officers are:
• Marcus Hale — President
• Diana Restrepo — Vice President, Finance
• Jonathan Kurtz — Vice President, Operations
All three officers are based at TAI's Houston office.
Intercompany Debt. TAI is the obligor under a $76.4 million subordinated intercompany promissory note payable to TSL. The note bears interest at a rate of 5.0% per annum and is fully subordinated to all external indebtedness of TAI. The intercompany note reflects advances made by TSL to TAI over time to fund TAI's working capital needs and capital expenditures at the Houston terminal.
Co-Borrower Status. TAI is a co-borrower under the U.S. Tranche (Term Loan B) of the Senior Secured Credit Facility described in Section II.D below. The Term Loan B is an $85 million non-amortizing bullet maturity facility, with TAI bearing direct repayment obligations as a co-borrower alongside TSL.
C. The Liquidity Crisis
The current financial distress facing TSL and TAI is rooted in a severe and sustained downturn in the dry-bulk shipping market, which has dramatically reduced the revenue-generating capacity of TSL's fleet and strained liquidity across the enterprise.
Market Conditions. The Baltic Dry Index ("BDI"), a widely followed benchmark for the cost of shipping dry-bulk commodities, declined approximately 58% between January 2022 and September 2022. This decline reflects a confluence of factors, including global economic slowdown, reduced Chinese demand for imported raw materials, and an increase in new vessel deliveries that expanded global shipping capacity at a time of contracting demand.
Impact on TSL's Earnings. TSL's average daily time-charter equivalent ("TCE") rate — the key revenue metric for shipping companies — fell precipitously from an average of $24,800 per day during FY2021 to an average of only $11,200 per day during the third quarter of 2022. This 54.8% decline in TCE rates had a direct and severe impact on TSL's cash flow, EBITDA, and ability to service its debt obligations.
Covenant Breaches. The deterioration in market conditions and financial performance has resulted in multiple breaches of the financial covenants contained in the Senior Secured Credit Facility, as follows:
Minimum Liquidity Covenant Breach (September 15, 2022): Under Section 7.11(a) of the Credit Agreement, TSL is required to maintain unrestricted cash and cash equivalents of not less than $40.0 million at all times. On September 15, 2022, TSL's unrestricted cash balance fell to $27.3 million, representing a shortfall of $12.7 million below the covenant minimum. This breach was reported to the Administrative Agent on September 16, 2022.
Maximum Net Leverage Ratio Breach (September 30, 2022): Under Section 7.11(b) of the Credit Agreement, TSL's Maximum Net Leverage Ratio (defined as the ratio of Net Debt to LTM EBITDA) is not to exceed 5.50x at the end of any fiscal quarter. As of September 30, 2022, the ratio stood at 7.82x, calculated as Net Debt of $770.9 million divided by LTM EBITDA of $98.6 million — well in excess of the 5.50x maximum. This breach constitutes an Event of Default under Section 8.01(d) of the Credit Agreement.
Minimum Interest Coverage Ratio Breach (September 30, 2022): Under Section 7.11(c) of the Credit Agreement, TSL's Minimum Interest Coverage Ratio (defined as the ratio of LTM EBITDA to LTM Interest Expense) is required to be not less than 2.50x at the end of any fiscal quarter. As of September 30, 2022, the ratio stood at only 1.74x, calculated as LTM EBITDA of $98.6 million divided by LTM Interest Expense of $56.7 million — significantly below the 2.50x minimum. This breach likewise constitutes an Event of Default under Section 8.01(d).
Fleet Valuation Decline. In addition to the decline in revenue-generating capacity, the market value of TSL's fleet has eroded substantially. A fleet appraisal conducted in January 2022 valued the 50 vessels at a total of $891 million. A subsequent appraisal conducted by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, Principal), dated November 1, 2022, valued the fleet at $623 million — a decline of $268 million, or 30.1%, in approximately ten months. This decline in collateral value is a matter of significant concern for the secured lender syndicate and has been a central topic in restructuring discussions.
D. Debt Structure Overview
TAI's and TSL's consolidated debt structure is summarized below. A detailed summary table is provided in Appendix D.
1. Senior Secured Credit Facility
The Senior Secured Credit Facility (the "Credit Agreement") was entered into on June 15, 2019, with a total commitment of $685 million. Nordbank International AG serves as both Administrative Agent and Collateral Agent. The facility comprises three tranches:
(a) Term Loan A: Original commitment of $400 million, amortizing with quarterly principal payments of $10 million. As of September 30, 2022, thirteen quarterly payments have been made, totaling $130 million in principal amortization. The outstanding principal balance of Term Loan A is $270 million.
(b) Revolving Credit Facility: Total commitment of $200 million. As of September 30, 2022, $185 million has been drawn, leaving $15 million of undrawn availability. The undrawn amount is subject to the satisfaction of conditions precedent to borrowing, which TAI and TSL may not currently be able to satisfy given the outstanding Events of Default.
(c) U.S. Tranche (Term Loan B): A non-amortizing bullet maturity loan in the amount of $85 million. TAI is a co-borrower under this tranche alongside TSL. The full $85 million remains outstanding.
The total amount outstanding under the Senior Secured Credit Facility as of September 30, 2022 is $540 million ($270 million + $185 million + $85 million).
The applicable interest rate under the Credit Agreement is the Secured Overnight Financing Rate ("SOFR") plus a margin of 375 basis points. Upon the occurrence and during the continuance of an Event of Default, the default rate applies, adding an additional 200 basis points to the applicable interest rate. Given the outstanding Events of Default, the default rate is currently in effect, subject to the Forbearance Agreement discussed below.
The maturity date of the Senior Secured Credit Facility is June 15, 2024.
Collateral. The obligations under the Credit Agreement are secured by first-priority liens on substantially all of TSL's and TAI's assets, including: (i) the 38 dry-bulk carriers and 12 container vessels comprising TSL's fleet (through first-preferred ship mortgages and related maritime security interests); (ii) the Houston terminal lease held by TAI; (iii) all accounts receivable of TSL and TAI; and (iv) the equity interests in TAI and the 14 vessel-owning special purpose vehicles ("SPVs") organized under various non-U.S. jurisdictions.
Lender Syndicate. The Credit Agreement is syndicated among nine lenders, with the following commitments and outstanding balances:
Ad Hoc Group of Senior Secured Lenders. An Ad Hoc Group has been formed consisting of Nordbank International AG, Harborstone Bank plc, Triton Credit Partners LP, and Continental Maritime Lending GmbH. This group collectively holds $372 million of the outstanding Senior Secured Credit Facility, representing 54.3% of the total facility. The Ad Hoc Group is represented by Whitfield, Crane & Burgess LLP, with Graham Whitfield III serving as lead counsel. The Ad Hoc Group has been the principal counterparty in restructuring negotiations to date.
2. Mezzanine Notes
The Mezzanine Notes were issued on June 15, 2019, in an original principal amount of $100 million. The notes bear interest at a rate of 11.5% per annum on a PIK toggle basis. Since the second quarter of 2022, all interest payments have been made in PIK (payment-in-kind) form, resulting in the capitalization of $12.3 million of accrued interest to the principal balance. The total outstanding amount of the Mezzanine Notes as of September 30, 2022 is $112.3 million.
The Mezzanine Notes mature on December 15, 2024. They are secured by a second-priority lien on the same collateral package securing the Senior Secured Credit Facility, subordinate and junior to the first-priority liens held by the senior secured lenders pursuant to an intercreditor agreement.
The Mezzanine Notes are held by Dralvecen Mezzanine Capital LLC (Rebecca Quimby, Managing Partner). Dralvecen Mezzanine Capital is represented by Kellner & Foss LLP, with Theodore Kellner serving as lead counsel.
3. Unsecured Notes
The Unsecured Notes were issued on March 1, 2020, in an aggregate principal amount of $50 million. The notes bear interest at a rate of 8.25% per annum, payable in cash semi-annually. Garrison Trust Company, located at 100 Wall Street, 16th Floor, New York, New York 10005, serves as the indenture trustee. The Unsecured Notes are identified by CUSIP 87265BAB5.
The Unsecured Notes mature on March 1, 2025. They are unsecured obligations, ranking junior to the Senior Secured Credit Facility and the Mezzanine Notes.
A semi-annual interest payment of $2,062,500 is scheduled for December 1, 2022. As of the date of this memorandum, TSL management has indicated that this payment may not be made on the scheduled date. The Unsecured Notes Indenture provides for a 30-day cure period following any missed interest payment before an Event of Default is triggered thereunder.
An informal group of unsecured noteholders has formed and is represented by Ashford, Brightmoor Group & McKay PC, with Carolyn Brightmoor Group serving as lead counsel. Engagement with this group is in its early stages.
4. Intercompany Note (TAI → TSL)
As noted above, TAI is the obligor under a $76.4 million subordinated intercompany promissory note payable to TSL. This note is fully subordinated to all external indebtedness of TAI. In a Chapter 11 case, the treatment of this intercompany claim — including questions of equitable subordination, recharacterization, and the potential for substantive consolidation — would require careful analysis. A separate memorandum addressing these issues is forthcoming.
5. Trade Payables
TAI and TSL have aggregate trade payables of approximately $38.7 million. The largest single trade creditor is Olympian Fuel & Supply SA, which is owed approximately $9.2 million for bunker fuel deliveries. Other significant trade creditors include port service providers, stevedoring companies, equipment lessors, and inland transportation carriers.
6. Total Indebtedness
The total consolidated indebtedness of TSL and TAI across all facilities, as of September 30, 2022, is approximately $847.3 million. This figure includes the Senior Secured Credit Facility ($540 million), the Mezzanine Notes ($112.3 million), the Unsecured Notes ($50 million), the intercompany note ($76.4 million), trade payables ($38.7 million), and other miscellaneous obligations ($29.9 million, including accrued but unpaid interest, vessel operating liabilities, and pension obligations).
E. Current Status: Forbearance and Engagement
Forbearance Agreement. On October 10, 2022, TSL, TAI, and the Administrative Agent (acting at the direction of the Required Lenders under the Credit Agreement) executed a Forbearance Agreement. Under the Forbearance Agreement, the senior secured lenders have agreed to forbear from exercising their remedies under the Credit Agreement in respect of the outstanding Events of Default for a period of 90 days, through January 8, 2023. The Forbearance Agreement contains customary milestones and termination events, including requirements that TSL and TAI engage professional advisors, provide periodic financial reporting to the Ad Hoc Group, and refrain from certain specified actions without the consent of the Required Lenders.
The Forbearance Agreement provides a critical window during which both the out-of-court restructuring and the Chapter 11 contingency plan can be developed. It is essential that the firm and the financial advisors use this period efficiently to advance both tracks to a point of decision readiness.
Legal Engagement. Calderwood & Harkness LLP was engaged on October 25, 2022, pursuant to a joint engagement letter signed by both TSL and TAI. The engagement covers all restructuring advisory and, if necessary, bankruptcy litigation services for both entities. A retainer of $500,000 was deposited by TSL on October 28, 2022, into our client trust account.
Financial Advisor Engagement. Kensington Veltrian Partners LLC ("KHP") has been retained as financial advisor to TSL and TAI. James Calloway, Managing Director, is leading the KHP engagement. KHP is conducting a comprehensive financial analysis of the TSL and TAI enterprise, including a business plan review, liquidity analysis, and enterprise valuation.
Enterprise Valuation. KHP has provided a preliminary enterprise value estimate (as of November 2022) in the range of $580 million to $640 million, with a midpoint of $610 million. This valuation reflects the current and projected market conditions, the charter rate environment, the fleet's earning capacity, and the value of the terminal operations.
Fulcrum Security Analysis. Based on the KHP midpoint enterprise value of $610 million, the fulcrum security analysis indicates the following:
Senior Secured Credit Facility ($540 million): Fully covered at the midpoint enterprise value. Recovery projected at approximately 100%.
Mezzanine Notes ($112.3 million): Partially covered. At the midpoint enterprise value, the residual value available for the mezzanine class is $610 million minus $540 million, or $70 million. This implies a recovery rate of approximately $70 million ÷ $112.3 million = 62.3%. The Mezzanine Notes are therefore the fulcrum security — the class where the enterprise value "breaks."
Unsecured Notes ($50 million): At the midpoint enterprise value, the Unsecured Notes would receive a recovery estimated at 8 to 14 cents on the dollar, depending on the ultimate enterprise value within the KHP range and the treatment of certain administrative and priority claims. At the low end of the enterprise value range ($580 million), unsecured recovery approaches the lower bound; at the high end ($640 million), there would be modestly greater residual value available.
Equity: No recovery is projected for existing equity holders under any scenario within the current KHP valuation range.
The fulcrum security analysis is critical because it identifies the Mezzanine Notes holder — Dralvecen Mezzanine Capital LLC — as the stakeholder with the greatest economic incentive to influence the restructuring outcome. Plan negotiations will likely center on the Mezzanine Notes class, and the terms of any plan of reorganization or out-of-court exchange will be heavily influenced by Dralvecen's position.
III. Chapter 11 Eligibility Analysis Under 11 U.S.C. §109
A. Eligibility of TAI as a "Person" Under §109(a)
Section 109(a) of the Bankruptcy Code provides the threshold eligibility requirement for all debtors: "Notwithstanding any other provision of this section, only a person that resides in the United States, or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor under this title." 11 U.S.C. §109(a).
The term "person" is defined broadly under §101(41) of the Bankruptcy Code to include an "individual, partnership, and corporation." TAI is a corporation organized under the laws of the State of Delaware and therefore qualifies as a "person" within the meaning of §101(41).
In addition to being a "person," TAI satisfies §109(a)'s jurisdictional nexus requirement through multiple independent bases:
(i) Domicile. As a corporation, TAI's domicile is its state of incorporation, Delaware, which is within the United States.
(ii) Place of Business. TAI's principal place of business is located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010. TAI has maintained its principal office at this location since its formation. The Houston office serves as the operational headquarters for TAI's terminal operations, vessel scheduling, and freight brokerage activities. TAI's three officers — Marcus Hale (President), Diana Restrepo (VP Finance), and Jonathan Kurtz (VP Operations) — are based at this location.
(iii) Property in the United States. TAI maintains substantial property within the United States, including its interest in the Houston terminal lease (a significant commercial asset), accounts receivable generated from its U.S. operations, cash held in U.S. bank accounts, office equipment and furnishings, and other tangible and intangible personal property.
Based on the foregoing, TAI clearly and unambiguously satisfies the eligibility requirements of §109(a) of the Bankruptcy Code.
B. Eligibility Under §109(d) — Chapter 11 Specifics
Section 109(d) of the Bankruptcy Code provides that "[o]nly a person that may be a debtor under [§109(a)] … may be a debtor under chapter 11 of this title." 11 U.S.C. §109(d). As demonstrated in Section III.A above, TAI qualifies as a debtor under §109(a).
Section 109(d) further restricts Chapter 11 eligibility by incorporating the exclusions contained in §109(b), which excludes from eligibility as a debtor under Chapter 11 certain categories of entities, including:
• A railroad, which may only be a debtor under subchapter IV of Chapter 11;
• A domestic insurance company;
• A bank, savings bank, cooperative bank, savings and loan association, building and loan association, homestead association, or credit union; and
• A foreign insurance company engaged in the business of insurance or reinsurance in the United States.
TAI is none of the foregoing. TAI is a domestic corporation engaged in the shipping, terminal operations, and freight brokerage business. It is not a railroad, an insurance company, a banking institution, or any other excluded entity category. Accordingly, TAI is eligible to be a debtor under Chapter 11 of the Bankruptcy Code.
It bears noting that insolvency is not a prerequisite to filing a Chapter 11 petition. Unlike certain other insolvency regimes around the world, the Bankruptcy Code does not require a debtor to demonstrate balance-sheet insolvency (i.e., that its liabilities exceed the fair value of its assets) or cash-flow insolvency (i.e., that it is unable to pay its debts as they come due) as a condition of filing for Chapter 11 relief. A debtor may file a Chapter 11 petition in good faith for range reasons, including the need to restructure its debt obligations, obtain breathing room from creditor enforcement actions, or facilitate an orderly sale of its assets. See In re SGL Carbon Corp., 200 F.3d 154, 162 (3d Cir. 1999) (discussing the absence of an insolvency requirement).
Nevertheless, in the case of TAI, both forms of insolvency are present. TAI's total obligations — including its $85 million co-borrower liability under Term Loan B, its $76.4 million intercompany note, and its allocable share of trade payables — substantially exceed the enterprise value attributable to TAI's operations. Additionally, TAI is experiencing cash-flow difficulties, as evidenced by the covenant breaches discussed above, the overall decline in revenue, and the liquidity constraints that have led to the forbearance negotiations. These facts further support the legitimacy and good faith of any Chapter 11 filing.
C. Filing as a Single Entity vs. Multiple Entities
We recommend that TAI file as the sole debtor entity in any Chapter 11 proceeding. The rationale for this approach is as follows:
Greek Parent TSL. TSL is a Société Anonyme organized under the laws of Greece. It is not organized, incorporated, or domiciled in the United States. While TSL does have certain property and business connections in the United States — principally through its ownership of TAI — the appropriate insolvency regime for TSL, if one becomes necessary, is Greek law, specifically Law 4738/2020 (the "Greek Insolvency Code"), which provides a comprehensive framework for debt resolution and restructuring of Greek enterprises.
If TSL were to commence insolvency proceedings under Greek Law 4738/2020, recognition of such proceedings in the United States could be sought under Chapter 15 of the Bankruptcy Code (11 U.S.C. §§1501–1532), which implements the UNCITRAL Model Law on Cross-Border Insolvency. A Chapter 15 petition would be filed by TSL's "foreign representative" and would seek recognition of the Greek proceeding as either a "foreign main proceeding" (if Greece is determined to be the location of TSL's "center of main interests" or "COMI") or a "foreign nonmain proceeding" (if TSL has an "establishment" in Greece). Given that TSL's headquarters, management, and the majority of its operations and employees are in Greece, a COMI determination in favor of Greece is highly likely. A separate memorandum addressing the COMI analysis and Chapter 15 recognition issues is being prepared by Nathan Ikeda, with a target completion date of November 8, 2022.
Vessel-Owning SPVs. The 14 vessel-owning SPVs that hold title to the individual vessels in TSL's fleet are organized under various non-U.S. jurisdictions (including the marshall Islands, Liberia, and Malta). These SPVs are not candidates for an initial Chapter 11 filing. However, as a contingency measure, a Draft Motion for Joint Administration has been prepared for the unlikely scenario that any U.S.-based SPVs or additional entities are determined to require filing. At this time, we do not anticipate that any of the SPVs will file.
KFO Holdings SA. KFO Holdings Société Anonyme, the Kostandinos family holding company organized under Greek law, would not file in any U.S. proceeding.
D. Involuntary Petition Risk
We have assessed the risk that one or more creditors of TAI could initiate an involuntary Chapter 11 petition against TAI under 11 U.S.C. §303.
Under §303(b)(1), an involuntary petition may be filed against a debtor that has 12 or more eligible creditors by three or more entities, each of which holds a claim against the debtor that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount, and that in the aggregate total at least $18,600 (as periodically adjusted). TAI has well in excess of 12 eligible creditors, given its trade creditor base, the co-borrower liability under Term Loan B, and other obligations. Accordingly, the three-petitioner threshold under §303(b)(1) would apply.
Risk Assessment: Moderate. At present, the risk of an involuntary petition is assessed as moderate but manageable. The Forbearance Agreement provides significant protection during its term, as the forbearing lenders have agreed to refrain from exercising remedies, and an involuntary petition filing would almost certainly be regarded as inconsistent with the spirit and letter of the forbearance undertaking. However, the risk would increase materially if:
(i) the Forbearance Agreement expires on January 8, 2023 without an extension or a consensual restructuring agreement having been reached;
(ii) the December 1, 2022 interest payment on the Unsecured Notes is missed and the 30-day cure period lapses without payment, potentially motivating the informal group of unsecured noteholders to take aggressive action; or
(iii) trade creditors, particularly Olympian Fuel & Supply SA (owed $9.2 million), become sufficiently concerned about their recovery prospects to join a petitioning creditor group.
We will continue to monitor this risk and advise on any developments that could elevate the likelihood of an involuntary petition. The availability of the Chapter 11 contingency plan would also serve as a defense against an involuntary filing, as TAI could preemptively file its own voluntary petition on favorable terms rather than being subjected to the creditors' choice of timing and circumstances.
IV. Venue Analysis
A. Statutory Framework — 28 U.S.C. §1408
Venue for a Chapter 11 case is governed by 28 U.S.C. §1408, which provides:
"Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one hundred and eighty-day period than in any other district; or
(2) in which there is pending a case under title 11 concerning such person's affiliate, general partner, or partnership."
Section 1408 is stated in the disjunctive, meaning that a debtor need satisfy only one of the listed bases to establish proper venue. The 180-day look-back period ensures that the debtor's connection to the chosen venue is more than transitory.
Only prong (1) is relevant to this analysis. No case under title 11 is currently pending concerning TAI's affiliates, so prong (2) does not apply.
We have evaluated three potential venues for a TAI Chapter 11 filing: (1) the U.S. Bankruptcy Court for the Southern District of Texas (Houston Division); (2) the U.S. Bankruptcy Court for the District of Delaware; and (3) the U.S. Bankruptcy Court for the Southern District of New York. Our analysis of each venue is set forth below, with a detailed comparison matrix provided in Appendix B.
B. Recommended Venue: U.S. Bankruptcy Court for the Southern District of Texas (Houston Division)
We recommend that any Chapter 11 petition by TAI be filed in the United States Bankruptcy Court for the Southern District of Texas, Houston Division.
Statutory Basis — Principal Place of Business. TAI's principal place of business is located at 1400 McKinney Street, Suite 2200, Houston, Texas 77010. This address has served as TAI's headquarters and primary operational center since the company's incorporation. TAI has maintained its principal place of business in the Southern District of Texas for well in excess of the 180-day period prescribed by §1408(1). There is no dispute or ambiguity regarding the location of TAI's principal place of business, and venue is therefore proper as a matter of law under §1408(1).
Operational Nexus. The Houston terminal operations constitute a core component of TAI's business. The Houston terminal is one of only three terminal facilities operated by the TSL group worldwide (the others being in Piraeus and Thessaloniki, both in Greece). The terminal handles cargo loading, unloading, storage, and intermodal transfer for TSL's transatlantic trade lanes and serves as the primary U.S. gateway for TSL's logistics network. TAI's approximately 680 U.S. employees are primarily based in Houston, working at the terminal, the headquarters office, and related operational facilities. The Jones Act–exempt foreign-flag vessel scheduling and domestic freight brokerage activities are likewise managed from the Houston office.
Location of Officers and Key Witnesses. All three of TAI's officers — Marcus Hale (President), Diana Restrepo (VP Finance), and Jonathan Kurtz (VP Operations) — are located in Houston. These individuals would be the principal declarants in support of the first-day motions and would serve as the primary witnesses in any contested matters during the Chapter 11 case. Filing in Houston eliminates the need for these individuals to travel extensively, reducing both cost and operational disruption during what will be a demanding period for TAI's management team.
Judicial Experience. The Southern District of Texas (Houston Division) has developed substantial experience with complex Chapter 11 cases, particularly in the shipping and energy sectors. Over the past decade, the Houston Division has presided over numerous high-profile restructurings involving maritime companies, offshore drilling operators, and energy companies, many of which presented the same types of issues likely to arise in a TAI Chapter 11 case — including ship mortgages, international collateral packages, cross-border coordination, and complex intercreditor disputes. The Houston Division has adopted local rules and case management procedures that facilitate the efficient administration of large and complex Chapter 11 cases, including procedures for expedited hearing scheduling, DIP financing approval, and management of multi-party discovery disputes.
Practical Considerations. Houston is home to a significant community of maritime and energy professionals, including restructuring attorneys, financial advisors, valuation experts, and maritime consultants, who would be available to support the case. Additionally, Houston's geographic location on the Gulf Coast places it in close proximity to the Port of Houston, where TAI's terminal operations are conducted, facilitating any site inspections, operational hearings, or asset-related proceedings that may arise during the case.
Conclusion. Venue in the Southern District of Texas (Houston Division) is proper under §1408(1) based on TAI's principal place of business, and it is the recommended venue on the basis of the strong operational, evidentiary, and judicial considerations described above.
C. Alternative Venue — U.S. Bankruptcy Court for the District of Delaware
TAI is a Delaware corporation with its registered agent, Capitol Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. Under §1408(1), TAI's "domicile" as a corporation is arguably its state of incorporation, which is Delaware. Accordingly, venue in the District of Delaware would likely be proper as a matter of statutory law.
The District of Delaware is home to a highly experienced bankruptcy bench and has a well-developed body of case law addressing complex Chapter 11 matters. Delaware has historically been a favored filing venue for large corporate debtors, particularly those incorporated in Delaware, and the court's familiarity with sophisticated restructuring issues is beyond question.
However, we do not recommend the District of Delaware for the following reasons:
Lack of Operational Presence. TAI has no meaningful operational presence in Delaware. Its registered agent relationship is a standard corporate formality that does not reflect any genuine business connection to the state. TAI has no employees, offices, operations, or assets in Delaware apart from its registered agent address. Filing in Delaware would place the case in a jurisdiction that has no connection to TAI's actual business activities.
Venue Transfer Risk. A filing in Delaware based solely on TAI's state of incorporation could invite a motion to transfer venue under 28 U.S.C. §1412, which permits transfer of a bankruptcy case "in the interest of justice or for the convenience of the parties." Given that TAI's operations, management, employees, assets, and key witnesses are all located in Houston, a creditor could make a compelling argument that the Southern District of Texas is the more appropriate and convenient forum. While the outcome of a venue transfer motion is never certain, the risk of transfer would be materially higher if the case were filed in Delaware than if it were filed in Houston.
Perception Issues. Filing in Delaware rather than Houston could be perceived by creditors, the U.S. Trustee, and the court as an attempt to engage in venue shopping — selecting a forum for strategic advantage rather than based on a genuine connection to the debtor's business. While Delaware venue selection is common and not inherently improper, the contrast between TAI's nonexistent Delaware operations and its substantial Houston presence would be difficult to explain and could create unnecessary friction at the outset of the case.
For these reasons, the District of Delaware is not recommended as the filing venue.
D. Alternative Venue — U.S. Bankruptcy Court for the Southern District of New York
The Southern District of New York, like the District of Delaware, is home to a highly experienced bankruptcy bench with a long history of presiding over complex Chapter 11 cases involving international debtors and sophisticated financial structures. Several of the parties involved in this matter — including Calderwood & Harkness LLP (debtor's counsel), Kensington Veltrian Partners LLC (financial advisor), and a number of the creditor-side professionals — are based in New York.
However, TAI does not have a principal place of business, principal assets, domicile, or residence in the Southern District of New York. TAI's operations, employees, officers, and assets are located in Houston, not New York. The mere fact that the debtor's and creditors' professional advisors are based in New York is insufficient to establish venue under §1408.
We have considered the possibility of establishing a minimal New York presence prior to filing — for example, by opening a small office or relocating a nominal function to New York. This strategy has been employed by other debtors in past cases to create a §1408 nexus with a preferred venue. However, we do not recommend this approach for the following reasons:
Legal Risk. The establishment of a de minimis New York presence shortly before filing, for the apparent purpose of manufacturing venue, is a practice that has drawn increasing scrutiny from courts and the U.S. Trustee's Office. While some courts have permitted it, others have questioned the legitimacy of such forum-shopping tactics, and the risk of a venue challenge would be elevated.
Reputational Risk. Thalassa's creditors are sophisticated financial institutions represented by experienced restructuring counsel. Any transparent attempt to manufacture venue in New York would likely generate objections and could damage the credibility and good faith of the debtor at the outset of the case — precisely the time when establishing trust with creditors and the court is most important.
Practical Considerations. The benefits of a New York venue — principally the convenience for New York–based professionals — do not outweigh the risks and costs of the venue-engineering exercise. Houston is well-connected by air to New York and other major cities, and the professionals involved in this matter are accustomed to traveling to the venue where their client's case is pending. Moreover, the Southern District of Texas's local rules provide for telephonic and video appearances in many proceedings, mitigating the travel burden for out-of-state parties.
Conclusion. The Southern District of New York is not a viable venue for TAI's Chapter 11 case absent corporate restructuring to establish a legitimate nexus, and we do not recommend pursuing such restructuring.
E. Venue Transfer Risk Assessment
Having recommended the Southern District of Texas (Houston Division) as the filing venue, we have assessed the risk that a creditor or other party in interest could successfully move to transfer the case to another district under 28 U.S.C. §1412.
Section 1412 provides that "[a] district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties." Courts evaluating a motion to transfer venue under §1412 consider a range of factors, including but not limited to:
(i) the location of the debtor's principal operations; (ii) the location of the debtor's creditors; (iii) the location of the debtor's assets; (iv) the proximity of the case to the affected community; (v) the efficient and economic administration of the estate; (vi) judicial economy; and (vii) the interest of justice.
Assessment. In the case of a TAI filing in the Southern District of Texas, virtually all of the relevant factors favor Houston as the appropriate venue:
Location of Debtor's Operations: Houston. TAI's terminal, office, employees, and management are all in Houston.
Location of Creditors: The creditor base is diverse and geographically dispersed. The senior secured lender syndicate includes lenders based in Germany (Nordbank, Continental Maritime Lending), Greece (Aegean Capital Bank), the United Kingdom (Harborstone Bank), and the United States (Pacifica Trade Finance, Triton Credit Partners, Laurentian Shipping Fund, Caspian Asset Management, Pelagos Institutional Credit Fund). The mezzanine holder (Dralvecen Mezzanine Capital) and the unsecured noteholders are dispersed across multiple U.S. cities. No single creditor concentration would favor a district other than Houston, and the international nature of the creditor base means that Houston is as accessible as any other U.S. venue.
Location of Assets: The Houston terminal is TAI's most significant U.S. asset. TAI's accounts receivable are generated primarily from its Houston-based operations. The fleet vessels, while global in their operations, are not permanently located in any single U.S. district.
Judicial Experience: The Houston Division's demonstrated expertise in shipping and energy restructurings supports the efficient administration of this case.
Interest of Justice: There is no basis to argue that the interest of justice would be served by transferring the case away from the district where the debtor's business is actually located and operated.
Risk Level: Low. We assess the risk of a successful venue transfer motion as low if the case is filed in the Southern District of Texas. A motion to transfer could theoretically be filed, but the moving party would face a heavy burden to demonstrate that transfer is warranted when the debtor's principal place of business and operations are located in the filing district.
V. Key Chapter 11 Parameters (Preliminary Overview)
This section provides a preliminary overview of the key operational parameters that would govern TAI's Chapter 11 case. Each topic identified below will be the subject of more detailed analysis in subsequent memoranda and work product as the case preparation advances.
A. Estimated Filing Entity Scope
As discussed in Section III.C, the sole debtor in any Chapter 11 filing would be Thalassa Americas Inc. The following entities would remain as non-debtor affiliates:
• TSL — Thalassa Shipping & Logistics Société Anonyme (Greece)
• KFO Holdings — KFO Holdings Société Anonyme (Greece)
• 14 Vessel-Owning SPVs — organized under various non-U.S. jurisdictions (Marshall Islands, Liberia, Malta)
A potential complication arises from the intercompany relationships between TAI and TSL. The $76.4 million intercompany note payable from TAI to TSL represents a significant claim that would be filed in the Chapter 11 case. TSL, as the holder of this claim, would be a creditor in TAI's case while simultaneously being TAI's sole equity holder. This dual status creates the potential for conflicts of interest and raises questions about the appropriate treatment of the intercompany claim.
Additionally, the intercompany note and the broader pattern of intercompany transactions between TAI and TSL could give rise to a motion for substantive consolidation — a judicially created doctrine under which the assets and liabilities of affiliated entities are pooled for purposes of distribution. While substantive consolidation is an extraordinary remedy that courts apply sparingly, the risk must be evaluated. If creditors of TAI were to argue that the corporate separateness of TAI and TSL has not been respected — for example, by demonstrating that intercompany transactions were not conducted at arm's length, that corporate formalities were not observed, or that the entities shared employees and operations without appropriate allocation — a substantive consolidation motion could complicate the Chapter 11 case significantly. A separate memorandum analyzing the substantive consolidation risk is forthcoming.
B. DIP Financing
A debtor-in-possession ("DIP") financing facility will be essential to maintaining TAI's operations during the Chapter 11 case. Without DIP financing, TAI would lack sufficient liquidity to fund its ongoing terminal operations, pay its employees, and satisfy its obligations to critical vendors and service providers during the pendency of the case.
A DIP financing term sheet is anticipated from Nordbank International AG and Triton Credit Partners LP, two members of the Ad Hoc Group. While the term sheet had not been received as of the date of this memorandum, it is expected to be delivered on or about December 15, 2022. Based on preliminary discussions between KHP and the Ad Hoc Group's financial advisors, the anticipated parameters of the DIP facility are as follows:
• Facility Size: $75 million (superpriority)
• Lenders: Nordbank International AG and Triton Credit Partners LP
• Interest Rate: SOFR + 600 basis points
• Commitment Fee: 0.50%
• Maturity: 12 months from closing
• Priority: Superpriority administrative expense claim under §364(c)(1) and first-priority lien on unencumbered assets under §364(c)(2)
DIP financing approval will be a critical first-day matter. We anticipate filing a motion for interim approval of the DIP facility on Day 1 of the case, with a request for immediate interim approval of a portion of the facility (typically sufficient to fund operations for the first 30 to 45 days) and a final hearing on or about Day 45.
The negotiation of adequate protection for the prepetition secured lenders will be a significant and potentially contentious element of the DIP financing process. With $540 million outstanding under the Senior Secured Credit Facility and the fleet appraised at $623 million, the senior secured lenders' equity cushion in the collateral is approximately $83 million — or approximately 15.4% of the outstanding secured debt. This is a relatively thin cushion, and the senior secured lenders will likely demand robust adequate protection in the form of replacement liens, superpriority claims, current cash interest payments, and potentially periodic fleet valuation updates. The terms of the adequate protection package will be a key focus of the DIP financing negotiations.
C. Estimated Administrative Costs
We estimate that total Chapter 11 administrative costs for the first 12 months of the case would be approximately $18.5 million. This estimate includes the following categories of professional and administrative expenses:
• Debtor's Counsel (Calderwood & Harkness LLP): Estimated at approximately $6.0–7.0 million, reflecting the complexity of the case, the cross-border coordination requirements, and the anticipated volume of contested matters and plan negotiations.
• Financial Advisor (Kensington Veltrian Partners LLC): Monthly advisory fee of $250,000 ($3.0 million annualized), plus a filing fee of $2.0 million triggered upon the commencement of the Chapter 11 case, plus a potential completion/plan confirmation fee. Total estimated at approximately $5.5–6.0 million.
• Chief Restructuring Officer (Alderney Management Advisors LLC): Estimated at approximately $2.0–2.5 million, including monthly fees for Richard "Rick" Thornberg (CRO designee) and support staff.
• U.S. Trustee Fees: Quarterly fees assessed by the U.S. Trustee's Office based on disbursements during the quarter, estimated at approximately $250,000–400,000 for the first year.
• Claims and Noticing Agent (Pendleton Claim Services Inc.): Estimated at approximately $500,000–750,000, covering claims processing, noticing, solicitation, and balloting services.
• Other Professional Fees: Including fees for any creditors' committee counsel and financial advisor (to be retained by any Official Committee of Unsecured Creditors appointed in the case), special counsel for maritime and admiralty issues, tax advisors, and other professionals. Estimated at approximately $2.0–3.0 million.
These costs represent a significant expense that would be avoided, in whole or in large part, if the out-of-court restructuring succeeds. The differential between in-court and out-of-court restructuring costs is a key factor in the comparative analysis that should inform the ultimate decision on whether to file.
D. CRO Engagement
Alderney Management Advisors LLC has been engaged on a standby basis to provide Chief Restructuring Officer services in the event that a Chapter 11 filing proceeds. The CRO designee is Richard "Rick" Thornberg, age 58, a seasoned restructuring professional with extensive experience in the shipping industry. Mr. Thornberg has served as CRO in three prior shipping Chapter 11 cases, including cases involving dry-bulk and container fleet operators with international operations and complex cross-border creditor constituencies.
Upon the filing of a Chapter 11 petition, Mr. Thornberg would be installed as an officer of TAI, with responsibility for managing the day-to-day restructuring process, interfacing with creditors and their advisors, coordinating with the court and the U.S. Trustee's Office, and overseeing the development and negotiation of a plan of reorganization. The CRO's role would complement, but not replace, the existing management team, with Marcus Hale (President) and his team continuing to manage TAI's ongoing business operations under the CRO's oversight.