PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the attorneys and professionals engaged in the representation of Thalassa Americas Inc. and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Amy Chesterton, Lead Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
FROM: Nathan Ikeda, Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
DATE: January 5, 2023
RE: Thalassa Americas Inc. — Critical Vendor Designation Analysis and §503(b)(9) Administrative Priority Claims
MATTER NO.: 1044-00003
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I. Executive Summary
The purpose of this memorandum is to analyze the trade creditor universe of Thalassa Americas Inc. ("TAI"), a Delaware C-Corporation with its principal office at 1400 McKinney Street, Suite 2200, Houston, TX 77010, in the context of the Chapter 11 contingency plan currently under development by this firm. As of September 30, 2022, TAI's aggregate trade payables totaled approximately $38.7 million across a diversified base of bunker fuel suppliers, port service providers, vessel maintenance vendors, freight brokerage counterparties, and professional service firms. This memorandum undertakes a two-part analysis:
First, the identification and tiered classification of vendors that would qualify for critical vendor designation under §363(b) of the Bankruptcy Code and the necessity-of-payment doctrine, such that TAI could obtain authority on the first day of a Chapter 11 case to pay certain prepetition trade claims in full or in part in order to preserve the ongoing supply relationships essential to continued operations.
Second, the quantification of potential §503(b)(9) administrative priority claims arising from goods received by TAI within the twenty-day window preceding a hypothetical petition date, and an assessment of the implications of such claims for the debtor-in-possession ("DIP") budget, the first-day cash management framework, and overall case strategy.
The proposed filing venue for any Chapter 11 case would be the United States Bankruptcy Court for the Southern District of Texas, Houston Division, where TAI maintains its principal place of business and where the court has developed a robust body of precedent addressing critical vendor motions in large commercial restructurings.
The key conclusions of this analysis are as follows. A meaningful portion of TAI's trade payable exposure — concentrated primarily in bunker fuel supply, vessel maintenance and marine supplies, and port services — would likely qualify for critical vendor treatment under the standards applied by the Southern District of Texas. The estimated aggregate critical vendor payment cap, subject to further refinement, falls in the range of $5 million to $8 million. Separately, TAI's §503(b)(9) exposure is estimated at $3.5 million to $5.1 million, driven predominantly by bunker fuel deliveries and marine supply purchases within the twenty-day prepetition window. These amounts must be reflected in the DIP budget and first-day cash management considerations, and should be coordinated with the DIP lending group as part of the approved budget negotiation.
This memorandum should be read in conjunction with the Chapter 11 Contingency Playbook — Comprehensive Execution Plan (dated January 10, 2023), the DIP Budget and Adequate Protection Analysis memo (dated January 8, 2023), and the Memorandum on Maritime Lien and Ship Mortgage Act Considerations (dated December 18, 2022). Each of these companion documents addresses aspects of the case preparation that intersect with the trade creditor analysis set forth herein.
The financial analysis underlying this memorandum has been supported by data provided by Kensington Veltrian Partners LLC ("KHP"), TAI's restructuring advisor, through Managing Director James Calloway, and by Diana Restrepo, Vice President of Finance at TAI. Both Mr. Calloway and Ms. Restrepo have been instrumental in assembling the trade creditor data, developing the thirteen-week cash flow model, and refining the administrative expense estimates that inform our recommendations.
II. Background
A. Overview of Thalassa Americas Inc.
Thalassa Americas Inc. is a wholly-owned subsidiary of Thalassa Shipping & Logistics Société Anonyme ("TSL"), a Greek société anonyme headquartered at 42 Akti Miaouli, Piraeus 18538, Greece. TSL was founded in 1987 by the Kostandinos family and has grown into a mid-market international shipping and logistics enterprise with operations spanning dry-bulk cargo transport, containerized shipping, terminal operations, and freight brokerage services across the Atlantic basin, the Mediterranean, and select Indo-Pacific trade lanes. TSL's global workforce comprises approximately 4,200 employees, including both shore-based personnel and seafarers.
TAI was incorporated in the State of Delaware and serves as the primary U.S. operating platform for TSL's Western Hemisphere activities. TAI's registered agent is Capitol Registered Agents LLC, located at 1209 Orange Street, Wilmington, Delaware 19801. TAI's Employer Identification Number is 84-3291057. The company's principal operations are centered in Houston, Texas, where it maintains terminal operations at the Port of Houston, manages Jones Act–exempt foreign-flag vessel scheduling for TSL's fleet, and operates a domestic freight brokerage business that arranges inland transportation for cargo discharged at the Houston terminal and other Gulf Coast ports.
TAI's financial performance has deteriorated significantly over the past fiscal year. For the fiscal year ended December 31, 2021, TAI reported revenue of approximately $312 million, reflecting strong demand in the post-pandemic shipping market and historically elevated freight rates. For the fiscal year ending December 31, 2022, however, TAI's estimated revenue declined to approximately $198 million — a decrease of approximately 36.5% — driven by the sharp correction in global shipping rates discussed in further detail below.
TAI currently employs approximately 680 individuals in the United States, comprising terminal operations staff, vessel scheduling and logistics personnel, freight brokerage professionals, and corporate and administrative employees. The company's senior management team consists of Marcus Hale (President), Diana Restrepo (Vice President, Finance), and Jonathan Kurtz (Vice President, Operations). Mr. Hale reports to TSL's Chief Executive Officer, Dimitris Kostandinos, in Piraeus.
B. The Liquidity Crisis and Covenant Breaches
The shipping industry has experienced a severe cyclical downturn during 2022. The Baltic Dry Index (BDI), the leading benchmark for the cost of shipping raw materials globally, declined approximately 58% between January 2022 and September 2022, reflecting a confluence of factors including slowing Chinese economic growth, European recessionary pressures, excess tonnage entering the global fleet, and the normalization of supply chain disruptions that had inflated freight rates during 2020 and 2021. The decline in the BDI has had a direct and material impact on TSL's revenue generation and profitability.
TSL's average daily time-charter equivalent — the key metric by which shipping companies measure the revenue productivity of their fleet — fell from $24,800 per day (fiscal year 2021 average) to $11,200 per day (third quarter 2022 average), representing a decline of approximately 54.8%. This compression in earnings has placed acute pressure on TAI's ability to service its consolidated debt obligations and maintain compliance with the financial covenants contained in its credit facilities.
On September 15, 2022, TAI breached the Minimum Liquidity Covenant contained in Section 7.12(a) of the Senior Secured Credit Agreement when its unrestricted cash balance fell to $27.3 million, which was $12.7 million below the $40 million minimum required by the covenant. This breach was promptly reported to Nordbank International AG, in its capacity as Administrative and Collateral Agent, in accordance with the notice provisions of the credit agreement.
As of September 30, 2022, TAI was in further violation of two additional financial maintenance covenants. The Net Leverage Ratio stood at 7.82x, well in excess of the maximum permitted ratio of 5.50x set forth in Section 7.12(b) of the Senior Secured Credit Agreement. The Interest Coverage Ratio had fallen to 1.74x, below the minimum of 2.50x required by Section 7.12(c). These calculations were based on TAI's last-twelve-months ("LTM") EBITDA of $98.6 million and LTM interest expense of $56.7 million as of September 30, 2022.
In response to these covenant breaches, TAI and its lender group entered into a Forbearance Agreement, dated as of October 10, 2022, pursuant to which the lenders agreed to a ninety-day standstill period through January 8, 2023, during which they would not exercise remedies under the credit agreement. The Forbearance Agreement has subsequently been extended for an additional sixty days, through March 8, 2023 (the "First Extension"), to permit continued negotiations toward either an out-of-court restructuring or, in the alternative, a consensual prearranged Chapter 11 filing supported by a restructuring support agreement ("RSA"). The standstill remains subject to various milestones and conditions, and the expiration of the forbearance period without resolution would constitute an immediate event of default entitling the lenders to accelerate all outstanding obligations.
C. Debt Structure Overview (As Relevant to Priority Waterfall)
An understanding of TAI's capital structure is essential context for the critical vendor and §503(b)(9) analysis, as the relative priority of trade claims vis-à-vis secured and mezzanine debt directly affects the strategic calculus for both the debtor and its creditors.
Senior Secured Credit Facility. TAI is obligor under a Senior Secured Credit Facility with a total commitment of $685 million, of which $540 million is currently outstanding. The facility comprises three tranches: (i) a Term Loan A ("TLA") with an outstanding principal balance of $270 million; (ii) a Revolving Credit Facility with an outstanding drawn balance of $185 million; and (iii) a Term Loan B — U.S. Tranche ("TLB") with an outstanding principal balance of $85 million. Nordbank International AG serves as Administrative Agent and Collateral Agent. The facility bears interest at SOFR plus 375 basis points. The facility is secured by first-priority liens on substantially all of TAI's assets, including (without limitation) the TSL fleet, the Houston terminal leasehold interest, all accounts receivable, inventory, equipment, intellectual property, and the equity interests in TAI held by TSL.
Mezzanine Notes. TAI has outstanding $112.3 million in Mezzanine Notes held by Dralvecen Mezzanine Capital LLC. The original principal amount of the Mezzanine Notes was $100 million, with an additional $12.3 million of payment-in-kind ("PIK") interest capitalized to principal since issuance. The Mezzanine Notes are secured by a second-priority lien on the same collateral package as the Senior Secured Credit Facility, junior to Nordbank's first-priority liens in all respects.
Unsecured Notes. TAI has $50 million in outstanding unsecured notes bearing interest at 8.25% per annum, payable in cash semi-annually. Garrison Trust Company serves as indenture trustee. TAI failed to make the scheduled coupon payment of $2,062,500 due on December 1, 2022, and is currently within the thirty-day cure period under the indenture. If the coupon payment is not made by the expiration of the cure period, the missed payment will constitute an event of default under the indenture.
Intercompany Note. TAI owes $76.4 million to its parent, TSL, pursuant to a subordinated intercompany note reflecting historical capital contributions, management fees, and allocated overhead. This obligation is contractually subordinated to all external debt, including the trade payables analyzed in this memorandum.
Trade Payables. As discussed in detail below, TAI's aggregate trade payables as of September 30, 2022 totaled approximately $38.7 million.
In the aggregate, TAI's total funded debt obligations (across all facilities, including intercompany) are approximately $847.3 million, exclusive of trade payables and other operating liabilities.
D. Fleet and Collateral Context
The primary collateral supporting TAI's debt structure is the TSL fleet, which comprises fifty vessels — thirty-eight dry-bulk carriers and twelve container vessels — deployed across Atlantic, Mediterranean, and select trans-Pacific trade lanes.
The fleet was appraised by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, principal) on November 1, 2022, at an aggregate fair market value of $623 million. This represents a decline of $268 million, or approximately 30.1%, from the January 2022 appraised value of $891 million. The decline in vessel values mirrors the broader downturn in the shipping market and underscores the erosion of collateral coverage for the Senior Secured Credit Facility and the Mezzanine Notes.
KHP has estimated TAI's enterprise value in the range of $580 million to $640 million, with a midpoint of $610 million. Under KHP's preliminary waterfall analysis, which distributes enterprise value across the priority waterfall in accordance with the Bankruptcy Code's absolute priority rule, unsecured creditors (including holders of the $50 million unsecured notes, the $76.4 million intercompany note, and the $38.7 million in trade payables) are estimated to receive a recovery of approximately 8 to 14 cents on the dollar in a Chapter 11 scenario.
This recovery estimate is significant for the trade creditor analysis, as it establishes the baseline impairment that trade creditors would face absent critical vendor protection or §503(b)(9) priority. The prospect of a recovery of 8 to 14 cents on the dollar for prepetition trade claims underscores the importance of the critical vendor mechanism as a tool for preserving vendor relationships and ensuring continuity of supply through the restructuring process.
III. Trade Creditor Universe — Composition and Analysis
A. Aggregate Trade Payable Exposure
As of September 30, 2022, TAI's total trade payables across all categories amounted to approximately $38.7 million. This figure is drawn from TAI's internal accounts payable ledger, as reconciled by Diana Restrepo and her finance team in coordination with KHP's restructuring analysis. The trade payable balance reflects amounts owed for goods and services provided to TAI and its affiliated operations in the ordinary course of business, net of any disputed invoices or credit memos.
The composition of the $38.7 million in trade payables, broken down by vendor category based on information provided by Ms. Restrepo and incorporated into KHP's thirteen-week cash flow model, is as follows:
Several observations emerge from this breakdown. First, bunker fuel supply represents the single largest category of trade payables, constituting more than one-third of the total. This concentration reflects the central importance of fuel procurement to TAI's vessel operations and the high unit cost of marine bunker fuel, particularly in the current pricing environment. Second, port services and terminal operations represent the second-largest category, reflecting TAI's dependence on third-party stevedoring, pilotage, tug assistance, and dockage services at the Port of Houston and other Gulf Coast facilities. Third, vessel maintenance and marine supplies — including spare parts, lubricants, paints, safety equipment, and other consumables — constitute a meaningful share of the payable base. Fourth, freight brokerage counterparties and transportation subcontractors, while a smaller share of the total, represent a category of vendors whose continued cooperation is essential to TAI's domestic logistics operations. Finally, professional services (including classification society fees and insurance premiums) and miscellaneous items round out the trade creditor universe.
B. Identification of the Largest Trade Creditors
The largest single trade creditor of TAI is Olympian Fuel & Supply SA ("Olympian F&S"), a bunker fuel supplier headquartered at 7 Iroon Polytechniou, Piraeus 18535, Greece. As of September 30, 2022, TAI owed Olympian F&S approximately $9.2 million, representing approximately 23.8% of total trade payables. This concentration of exposure in a single vendor warrants heightened scrutiny from both the critical vendor and §503(b)(9) perspectives.
Olympian F&S supplies bunker fuel for TAI-scheduled vessels calling at the Port of Houston and servicing transatlantic routes. The company is the sole or predominant supplier for certain routes where credit-terms bunkering is available. TAI's alternatives for bunker fuel procurement on comparable credit terms are limited, particularly for the specific grades of marine fuel required by TAI's fleet (including both very low sulfur fuel oil, or VLSFO, and marine gas oil, or MGO, in compliance with the International Maritime Organization's 2020 sulfur cap regulations). The loss of the Olympian F&S supply relationship would require TAI to procure fuel on a cash-on-delivery or prepayment basis from alternative suppliers — an outcome that would impose severe liquidity strain on an already cash-constrained debtor.
An additional layer of complexity surrounds Olympian F&S's claims: as a bunker fuel supplier, Olympian F&S may hold maritime liens on specific vessels for unpaid fuel deliveries, which liens arise by operation of law under the Commercial Instruments and Maritime Liens Act, 46 U.S.C. §§31301 et seq. Maritime liens enjoy a privileged status in admiralty law and may, in certain circumstances, prime the preferred ship mortgages held by the Senior Secured Credit Facility's collateral agent, Nordbank International AG. The maritime lien analysis is addressed in detail in the separate Memorandum on Maritime Lien and Ship Mortgage Act Considerations, dated December 18, 2022, and is cross-referenced herein to the extent relevant to the critical vendor strategy.
Beyond Olympian F&S, we estimate that there are approximately fifteen to twenty additional vendors with individual payable balances in excess of $500,000. These vendors include secondary bunker fuel suppliers, port service providers at the Houston terminal, marine equipment and parts suppliers, classification societies (such as Meridian Industries and DNV), and domestic freight subcontractors. A comprehensive vendor-by-vendor listing, categorized by criticality tier, is being compiled and will be set forth in Appendix A upon finalization.
It bears noting that many of TSL's and TAI's vendors are based outside the United States — principally in Greece, Singapore, and the United Kingdom. This international character of the vendor base raises jurisdictional enforcement considerations that are discussed in Section VIII.C below. In a TAI-only Chapter 11 filing, the automatic stay under 11 U.S.C. §362(a) would apply to actions against TAI and property of the TAI estate, but would not necessarily compel continued supply from foreign vendors who are not subject to the personal jurisdiction of the U.S. courts and who may elect to simply cease doing business with TAI rather than comply with the terms of a critical vendor order.
C. TAI-Specific vs. TSL-Level Payables
A significant analytical distinction must be drawn between trade payables that are direct obligations of TAI and those that are TSL-level obligations but which may have intercompany allocation implications affecting the Chapter 11 analysis.
Of the $38.7 million in aggregate trade payables, we estimate that approximately $12 million to $15 million represents direct obligations of TAI arising from its Houston terminal operations, domestic freight brokerage activities, and TAI-specific vessel scheduling functions. These are payables for which TAI is the contractual obligor on the relevant purchase orders, supply agreements, and service contracts.
The remainder of the trade payable balance — approximately $23.7 million to $26.7 million — resides at the TSL parent level and relates to Greek and international operations. These TSL-level payables are not direct obligations of TAI and would not be subject to the automatic stay in a TAI-only Chapter 11 filing. They would, however, appear on a consolidated balance sheet and may be relevant to the extent of intercompany allocation arrangements between TSL and TAI.
The implications for the critical vendor analysis are twofold. First, the TAI-specific vendors represent the primary focus of the critical vendor motion, as these are the creditors whose prepetition claims would be subject to the automatic stay and whose cooperation is essential to the continued operation of TAI's U.S. business during the Chapter 11 case. Second, TSL-level vendors — including, notably, Olympian F&S, which contracts with TSL at the parent level but supplies fuel for vessels scheduled by TAI — may nonetheless refuse to supply TAI-related operations if they are not paid on TSL's account, even if their contractual relationship is with TSL rather than TAI. This dynamic creates a practical risk of supply disruption that may not be fully addressable through the Chapter 11 critical vendor mechanism and underscores the importance of coordinating the TAI filing strategy with TSL's own financial position and vendor management efforts.
IV. Legal Framework — Critical Vendor Motions Under §363(b)
A. The Necessity-of-Payment Doctrine
The authority to pay prepetition claims of critical vendors in a Chapter 11 case derives from the necessity-of-payment doctrine, which has its historical roots in the law of railroad receiverships. In the nineteenth and early twentieth centuries, federal courts overseeing railroad receiverships routinely authorized the payment of prepetition claims owed to suppliers of essential goods and services — such as fuel, rolling stock maintenance, and labor — on the ground that the failure to make such payments would result in the cessation of railroad operations and the destruction of the going-concern value of the receivership estate, to the detriment of all creditors.
The necessity-of-payment doctrine has been carried forward into modern bankruptcy practice, notwithstanding the absence of an express statutory provision in the Bankruptcy Code authorizing the payment of prepetition unsecured claims ahead of plan confirmation. The prevailing view is that §363(b)(1) of the Bankruptcy Code — which authorizes the trustee (or debtor-in-possession, under §1107(a)) to "use, sell, or lease, other than in the ordinary course of business, property of the estate" with court approval — provides the statutory basis for critical vendor payments. Under this framework, the payment of prepetition claims to critical vendors constitutes a use of estate property outside the ordinary course of business that requires notice and a hearing, but may be authorized by the court where the debtor demonstrates that such payments are necessary to preserve the going-concern value of the estate and are in the best interests of all stakeholders.
The standard for approval of critical vendor motions in the Fifth Circuit, which governs proceedings in the Southern District of Texas, has been articulated in a series of rulings by bankruptcy judges in the Houston Division. Courts in this district have approved critical vendor payments where the debtor demonstrates that: (i) the vendor is the sole or limited source of essential goods or services that the debtor cannot obtain from alternative suppliers on comparable terms; (ii) withholding payment of the vendor's prepetition claim would cause disruption to the debtor's business operations disproportionate to the amount of the claim in question; and (iii) the proposed payment is in the best interests of the estate as a whole, considering the interests of all creditors and parties in interest. See, e.g., In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002) (discussing the necessity-of-payment doctrine and its application in the Fifth Circuit); see also In re Mirant Corp., 296 B.R. 427 (Bankr. N.D. Tex. 2003) (approving critical vendor payments where debtor established that vendors were essential to continued utility operations).
Although the Fifth Circuit has not issued a definitive appellate ruling on the permissibility of critical vendor motions under §363(b) — and the Seventh Circuit's decision in In re Kmart Corp., 359 F.3d 866 (7th Cir. 2004), imposed heightened scrutiny on such motions — the Southern District of Texas has continued to approve critical vendor relief in appropriate circumstances, particularly in cases involving complex commercial enterprises with concentrated vendor dependencies. The standard typically requires the debtor to present evidence, usually through a declaration of a senior officer, that the vendor has either threatened to withhold supply or would be expected to do so based on the circumstances, and that no adequate substitute supplier exists or could be engaged on a timely basis without material harm to the debtor's operations.
B. Practical Requirements for a Critical Vendor Motion
In practice, a critical vendor motion in the Southern District of Texas must be supported by a declaration — which in TAI's case would most likely be provided by Marcus Hale (President) or Jonathan Kurtz (Vice President, Operations) — establishing the following elements:
(a) Dependence on specific vendors. The declaration must describe, with specificity, the debtor's reliance on the vendors proposed for critical vendor designation, including the nature of the goods or services provided, the volume and frequency of transactions, and the vendor's role in the debtor's operational workflow.
(b) Absence of commercially reasonable alternatives. The declarant must attest that the debtor has evaluated the market for alternative suppliers and has determined that no alternative source of supply is available on comparable terms (including credit terms, quality, delivery schedules, and geographic proximity) or, if alternatives exist, that the transition to an alternative supplier would cause material delay, cost, or operational disruption.
(c) Risk of operational disruption. The declaration must identify the specific operational consequences that would result from the vendor's refusal to continue supply, including any impact on revenue-generating activities, customer relationships, regulatory compliance, or safety.
(d) Proposed aggregate cap on critical vendor payments. The motion must specify the maximum aggregate amount that the debtor seeks authority to pay to critical vendors, together with the criteria that the debtor will apply in allocating payments among designated vendors.
Courts in the Southern District of Texas typically impose conditions on the approval of critical vendor payments. The most common conditions include: (i) a requirement that each vendor receiving a critical vendor payment agree to continue supplying the debtor on customary trade terms (including credit terms, pricing, and delivery schedules) for a specified period following the petition date; and (ii) a "clawback" provision entitling the debtor to seek return of any critical vendor payment made to a vendor that subsequently refuses to continue supply or that fails to honor its post-petition supply commitments.
For TAI, the proposed aggregate cap on critical vendor payments is to be determined based on further diligence into the vendor-by-vendor exposure, but our initial estimate is in the range of $5 million to $8 million. This estimate is based on a preliminary assessment of the vendors most essential to Houston terminal operations and vessel scheduling, net of amounts that would be covered by §503(b)(9) administrative priority (discussed in Section V below). The precise cap will be refined as we complete the detailed vendor analysis described in Section IX.
C. Intersection with Administrative Priority Claims
An important strategic consideration in the critical vendor analysis is the intersection between critical vendor designations and §503(b)(9) administrative priority claims. Vendors that hold §503(b)(9) claims — that is, vendors that supplied goods to TAI within the twenty-day period preceding the petition date — already enjoy administrative expense priority for the value of those goods under the Bankruptcy Code. Such vendors may therefore have less incentive to negotiate critical vendor agreements or to threaten supply disruption, because they can be confident that the §503(b)(9) portion of their claims will be paid in full as an administrative expense of the Chapter 11 case, either upon allowance or under a confirmed plan.
Conversely, from the debtor's perspective, the existence of §503(b)(9) claims may reduce the universe of vendors for which separate critical vendor treatment is necessary. If a vendor's total prepetition claim is modest and a substantial portion of it qualifies for §503(b)(9) treatment, the incremental critical vendor payment required to retain that vendor's continued cooperation may be small or even unnecessary. This dynamic suggests that the critical vendor motion should be calibrated to focus on vendors whose non-§503(b)(9) prepetition exposure is large enough to threaten supply disruption, while treating §503(b)(9)-eligible vendors as a partially self-protecting category that may require less intervention.
We recommend that the critical vendor motion and the §503(b)(9) analysis be presented to the court in a coordinated fashion, so that the court and parties in interest can evaluate the total administrative cost associated with trade creditor protection and assess the reasonableness of the proposed payments in the context of the DIP budget and the overall cost of administering the Chapter 11 case.
V. Legal Framework — §503(b)(9) Administrative Priority Claims
A. Statutory Text and Requirements
Section 503(b)(9) of the Bankruptcy Code, added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), provides administrative expense priority for:
"the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor's business."
11 U.S.C. §503(b)(9). This provision was enacted to address the perceived inequity faced by trade creditors who delivered goods to a debtor on the eve of bankruptcy and received no priority over other unsecured creditors in the distribution of estate assets. By affording administrative expense status to such claims, Congress ensured that vendors who supplied goods in the twenty-day prepetition window would be paid ahead of general unsecured creditors — and, in many cases, in full — as a cost of administering the bankruptcy estate.
The elements of a §503(b)(9) claim are as follows:
(i) Goods (not services). The claim must relate to "goods" — that is, tangible personal property — and not to services, licenses, or intangible deliverables. This distinction is of central importance in the shipping industry, where TAI's vendor universe encompasses both goods-based and services-based obligations. Bunker fuel constitutes "goods" for §503(b)(9) purposes, as it is a tangible commodity purchased, delivered, and consumed. Similarly, vessel parts, marine supplies, lubricants, and other tangible items qualify as goods. By contrast, port services — including stevedoring, pilotage, tug assistance, and dockage — are services and do not give rise to §503(b)(9) claims. Freight brokerage fees and transportation subcontractor charges are likewise services rather than goods. Classification society fees, insurance premiums, and consulting fees are also excluded from §503(b)(9) treatment.
(ii) Received by the debtor. The goods must have been "received" by the debtor — meaning that actual physical delivery to the debtor (or its agent) must have occurred — within the relevant twenty-day window. Goods that were ordered but not yet delivered as of the petition date do not qualify. Goods in transit may present questions as to whether "receipt" occurred within the meaning of the statute, depending on the applicable delivery terms (e.g., FOB shipping point vs. FOB destination) and the Uniform Commercial Code provisions governing passage of title and risk of loss.
(iii) Within 20 days before the petition date. The twenty-day lookback period is measured from the date of commencement of the case (i.e., the petition date) and runs backward twenty calendar days. The computation of the twenty-day period follows standard Bankruptcy Rule 9006(a) methodology.
(iv) Sold in the ordinary course. The goods must have been "sold to the debtor in the ordinary course of such debtor's business," which excludes goods obtained through extraordinary or one-off transactions outside the debtor's normal procurement patterns.
With respect to the measurement of "value," courts have generally held that the "value" of goods for §503(b)(9) purposes means the value of the goods at the time of receipt by the debtor, which is typically (though not necessarily) equal to the contract price or invoice amount. In cases where the invoice price reflects a significant premium or discount relative to market value, a court may inquire into the fair market value of the goods as of the delivery date. For TAI's purposes, we expect that the invoice amounts will closely approximate the value of the goods at the time of receipt, and we have used invoice data as the basis for our §503(b)(9) estimates.
B. Quantification of Potential §503(b)(9) Exposure
For purposes of this analysis, we have assumed a hypothetical petition date of approximately mid-January 2023, consistent with the contingency playbook timeline that contemplates a Day 1 petition filing in the event that the forbearance period terminates without extension or the parties fail to reach agreement on an RSA. The twenty-day lookback window for a mid-January 2023 petition date would cover approximately late December 2022 through the petition date.
Based on TAI's historical purchasing patterns, fleet fuel consumption rates, and TAI-allocated cost data provided by Ms. Restrepo and incorporated into KHP's cash flow model, we estimate the following §503(b)(9) exposure:
The bunker fuel estimate is derived from the fleet's average daily fuel consumption across the fifty-vessel fleet, multiplied by the current average price per metric ton of VLSFO and MGO, and allocated to TAI based on its share of scheduling and operational responsibility for vessels calling at the Port of Houston and servicing TAI-managed routes. The marine supplies and vessel parts estimate is based on the average twenty-day procurement cycle for consumables, spare parts, and maintenance materials ordered by TAI's operations team. The "other goods" category covers a residual basket of office supplies, IT equipment, and miscellaneous tangible items.
An important caveat applies: the precise quantification of §503(b)(9) exposure requires a detailed, invoice-level review of purchase orders, delivery records (including bills of lading, delivery receipts, and warehouse logs), and corresponding invoices for the exact twenty-day window preceding the petition date. Ms. Restrepo and the TAI accounting team are in the process of compiling this data, and we expect to have a more refined estimate available by the time the first-day papers are finalized. The estimates set forth above should be treated as directional ranges rather than definitive figures.
These §503(b)(9) amounts would constitute administrative expense claims entitled to payment in full under a Chapter 11 plan of reorganization, in accordance with 11 U.S.C. §1129(a)(9)(A). In certain circumstances, §503(b)(9) claimants may also seek payment prior to plan confirmation, which could impose additional near-term liquidity demands on the estate. The DIP budget must therefore account for these claims both as a current liability and as a component of the overall administrative expense reserve.
C. Olympian Fuel & Supply SA — Specific §503(b)(9) Analysis
Given the outsized significance of Olympian Fuel & Supply SA as TAI's largest trade creditor, a more granular analysis of Olympian F&S's §503(b)(9) exposure is warranted.
Of Olympian F&S's total claim of approximately $9.2 million, a portion attributable to bunker fuel deliveries made within the twenty-day prepetition window would qualify for §503(b)(9) administrative expense treatment. Based on the typical biweekly bunkering schedule for TAI-scheduled vessels calling at the Port of Houston — which generally involves fuel deliveries every ten to fourteen days for each vessel, with multiple vessels bunkering in any given twenty-day period — we estimate the §503(b)(9) component of Olympian F&S's claim at approximately $1.5 million to $2.0 million.
The remainder of Olympian F&S's claim — approximately $7.2 million to $7.7 million — would be classified as a general unsecured claim in the Chapter 11 case, subject to the estimated recovery range of 8 to 14 cents on the dollar under the KHP waterfall analysis. However, this classification is subject to an important qualification: Olympian F&S may hold maritime liens on specific vessels for unpaid bunker fuel deliveries. Under the Commercial Instruments and Maritime Liens Act, 46 U.S.C. §§31301 et seq., a person providing necessaries to a vessel (including bunker fuel) is entitled to a maritime lien against the vessel. Maritime liens are in rem claims that attach to the vessel itself and are enforceable through an admiralty arrest proceeding, regardless of who owns the vessel at the time of enforcement. Critically, maritime liens for necessaries generally prime preferred ship mortgages under 46 U.S.C. §31326(b)(1), meaning that Olympian F&S's maritime liens could take priority over the ship mortgages granted to Nordbank International AG as collateral agent for the Senior Secured Credit Facility.
The intersection of §503(b)(9) priority, potential critical vendor designation, and maritime lien priority creates a multi-layered priority analysis for Olympian F&S's claims that must be carefully coordinated. A single vendor may simultaneously hold (a) a §503(b)(9) administrative expense claim for the most recent twenty days of fuel deliveries, (b) a maritime lien on specific vessels for earlier unpaid deliveries, and (c) a general unsecured claim for the balance. Each component of the claim would receive different treatment in the priority waterfall, and the critical vendor strategy must account for all three dimensions. The detailed maritime lien analysis is set forth in the December 18, 2022 memorandum and is incorporated herein by reference.
VI. Identification of Proposed Critical Vendors
A. Tier 1 — Essential / Sole-Source Vendors (Recommended for Critical Vendor Payment)
Tier 1 vendors are those whose continued supply of goods or services is essential to TAI's ongoing operations and for which no commercially reasonable alternative exists or could be secured on a timely basis without material harm to the debtor's business. We recommend that these vendors be included in the first-day critical vendor motion and authorized to receive payment of their prepetition claims (or a negotiated portion thereof) in exchange for their commitment to continue supplying TAI on customary trade terms during the Chapter 11 case.
The following vendors have been provisionally designated as Tier 1 based on our preliminary analysis:
Olympian Fuel & Supply SA. As discussed at length in Sections III.B and V.C above, Olympian F&S is the single largest trade creditor at $9.2 million and the sole or predominant bunker fuel supplier for certain TAI-managed routes. The cessation of Olympian F&S's fuel supply would ground TAI-scheduled vessels and halt revenue-generating cargo operations, causing immediate and severe harm to the estate. We recommend that Olympian F&S be designated as a critical vendor for the non-§503(b)(9) portion of its claim. Given the §503(b)(9) component of approximately $1.5 million to $2.0 million, the critical vendor payment for Olympian F&S would be applied to the balance of the prepetition claim not already entitled to administrative priority, with the exact amount to be determined through negotiation and subject to the maritime lien analysis.
Key Port Service Providers at Houston Terminal. TAI's Houston terminal operations depend on a limited number of port service providers for stevedoring, pilotage, and tug assistance. While port services are generally classified as services rather than goods (and thus would not qualify for §503(b)(9) treatment), the providers of these services are essential to TAI's ability to discharge and load cargo at the Houston terminal. We are in the process of identifying the specific port service providers that are sole-source or limited-source for the Houston terminal and that should be included in the Tier 1 designation. These vendors will be listed in Appendix A.
Sole-Source Marine Equipment Suppliers. Certain critical vessel components — including navigation electronics, engine parts, and specialized safety equipment — are sourced from a small number of OEM-authorized suppliers with whom TAI has established procurement relationships. The loss of these supply relationships could result in vessel downtime, classification society deficiencies, and potential regulatory action by the U.S. Coast Guard or flag-state authorities. We recommend that sole-source marine equipment suppliers be included in the Tier 1 critical vendor designation.
Mission-Critical IT and Logistics Systems Providers. TAI's vessel scheduling, cargo tracking, and freight brokerage operations depend on proprietary software platforms and data services provided by a small number of IT vendors. If any of these vendors were to terminate service for nonpayment, TAI's ability to coordinate vessel movements, manage cargo documentation, and communicate with customers would be severely impaired. These vendors are being identified and will be included in Appendix A.
The estimated aggregate Tier 1 critical vendor exposure — exclusive of amounts covered by §503(b)(9) administrative priority — is in the range of $3 million to $5 million. This figure represents the prepetition claim amounts that we would seek authority to pay to Tier 1 vendors in the first-day critical vendor motion.
B. Tier 2 — Important but Substitutable Vendors (Case-by-Case Analysis)
Tier 2 vendors are those that provide goods or services that are important to TAI's operations but for which commercially reasonable alternatives exist, albeit at some cost or delay. These include secondary bunker fuel suppliers that serve as backup sources for routes not exclusively covered by Olympian F&S, general marine supply houses that provide fungible consumables (paints, lubricants, ropes, and deck supplies), and domestic freight subcontractors engaged on a transactional basis for specific shipments.
We do not recommend including Tier 2 vendors in the first-day critical vendor motion as a matter of course. Instead, we recommend that TAI monitor these vendor relationships during the early weeks of the Chapter 11 case and, if any Tier 2 vendor threatens to withhold supply or terminate its relationship, consider adding that vendor to the critical vendor program through a supplemental motion. This approach conserves estate resources by avoiding unnecessary prepetition claim payments while preserving the debtor's flexibility to respond to vendor pressure as it materializes.
The estimated aggregate Tier 2 vendor exposure is in the range of $3 million to $5 million, though we would not expect to pay more than a fraction of this amount unless specific supply disruptions threaten.
C. Tier 3 — General Trade Creditors (No Critical Vendor Treatment)
Tier 3 vendors are those providing fungible goods or services that are readily available from multiple alternative sources at competitive prices. This category includes suppliers of commodity office supplies, janitorial services, routine printing and shipping services, and other items for which TAI has no meaningful switching cost or sole-source dependency.
The prepetition claims of Tier 3 vendors would be treated as general unsecured claims in the Chapter 11 case, subject to the estimated recovery of 8 to 14 cents on the dollar under the KHP waterfall analysis. No critical vendor treatment is recommended for these creditors. However, to the extent that any Tier 3 vendor delivered goods (as opposed to services) to TAI within the twenty-day prepetition window, the §503(b)(9) component of that vendor's claim would still be entitled to administrative expense priority and would be payable in full.
VII. DIP Budget and Cash Flow Implications
The trade creditor analysis set forth in this memorandum has direct and significant implications for the DIP budget and the first-day cash management framework. As of this writing, TAI has received a term sheet, dated December 15, 2022, from Nordbank International AG and Triton Credit Partners LP for a $75 million DIP credit facility. The key terms of the proposed DIP facility include an interest rate of SOFR plus 600 basis points, a commitment fee of 0.50% on undrawn amounts, and a twelve-month maturity from the petition date. The DIP facility would provide the liquidity necessary to fund TAI's operations during the Chapter 11 case, including the payment of trade creditor obligations in the ordinary course and the satisfaction of first-day relief orders.
The DIP budget must account for the following trade creditor-related disbursements:
Critical vendor payments. The estimated aggregate critical vendor payment cap of $5 million to $8 million must be included as a line item in the DIP budget's first-week or first-month disbursement schedule. Critical vendor payments are typically authorized on the first day of the case and disbursed promptly thereafter, as the purpose of such payments is to forestall immediate supply disruptions that could impair the debtor's going-concern operations.
§503(b)(9) administrative expense claims. The estimated §503(b)(9) exposure of $3.5 million to $5.1 million must be reserved in the DIP budget as an administrative expense obligation that will come due either upon allowance of the claims or upon confirmation of the Chapter 11 plan. While §503(b)(9) claims are not typically paid on the first day, some vendors may assert a right to immediate payment, and the DIP budget should include sufficient liquidity to address any such demands.
Ongoing trade payable obligations. In addition to prepetition critical vendor and §503(b)(9) payments, the DIP budget must provide for the continued payment of trade obligations incurred post-petition in the ordinary course of business. These are not prepetition claims and do not require court authorization, but they represent a significant ongoing cash requirement that must be modeled in the thirteen-week cash flow projection.
In the aggregate, the critical vendor payments, §503(b)(9) reserves, and related administrative costs are reflected in the estimated $18.5 million first-year administrative cost budget developed by KHP. This figure also includes professional fees (for counsel, financial advisors, and other retained professionals), United States Trustee fees, and other administrative expenses of the Chapter 11 case.
Coordination with KHP's thirteen-week cash flow model is essential to ensure that the DIP facility provides adequate liquidity for critical vendor payments during the initial weeks post-petition — the period of greatest vulnerability to supply disruptions. Mr. Calloway and his team at KHP are incorporating the trade creditor analysis into the cash flow model and stress-testing the liquidity projections against various vendor payment scenarios.
A final point of coordination concerns the DIP lenders themselves. The DIP facility's approved budget will likely include a dedicated line item for critical vendor and §503(b)(9) payments, subject to the consent of Nordbank International AG and Triton Credit Partners LP as DIP lenders. To the extent that the DIP lenders seek to impose restrictions on the timing or amount of critical vendor payments — whether through budget variance provisions, milestone requirements, or carve-out limitations — we will need to negotiate these provisions carefully to preserve TAI's operational flexibility. Additionally, the Ad Hoc Group of Senior Secured Lenders, represented by Whitfield, Crane & Burgess LLP (Graham Whitfield III), may scrutinize critical vendor designations as part of the broader adequate protection negotiations, on the theory that critical vendor payments reduce the cash available to secured creditors. We should anticipate this objection and be prepared to demonstrate that the critical vendor payments are necessary to preserve the going-concern value of the estate, which inures to the benefit of all creditors — including the secured lenders.
VIII. Strategic Considerations
A. Leverage in Out-of-Court Negotiations
The critical vendor analysis serves a dual purpose in the context of TAI's restructuring strategy. Its primary function is to prepare for a contingent Chapter 11 filing by identifying the vendors that would require critical vendor designation and quantifying the §503(b)(9) exposure that would arise in the event of a petition. However, the analysis also informs the ongoing out-of-court negotiations by providing a concrete illustration of the consequences that a Chapter 11 filing would have for trade creditors and for TAI's operational continuity.
Under the RSA framework currently being negotiated between TAI, the Senior Secured Lenders, and the Mezzanine Notes holders, trade creditors would be paid in full in the ordinary course, with no modification or impairment of their claims. This treatment stands in stark contrast to the estimated recovery of 8 to 14 cents on the dollar that trade creditors would receive in a Chapter 11 plan scenario, where unsecured claims would be subordinated to secured and priority claims in the distribution waterfall.
The disparity between full payment under an RSA and 8 to 14 cents on the dollar in a Chapter 11 plan provides significant incentive for trade creditors — particularly the larger vendors whose continued cooperation is essential — to support the out-of-court process and maintain normal trade terms during the forbearance period. From a negotiating perspective, the critical vendor analysis allows TAI's management team to engage proactively with key vendors, explain the restructuring process, and reinforce the message that an orderly out-of-court resolution is in the best interests of all stakeholders, including trade creditors.
B. Maritime Lien Overlay
The maritime lien dimension of the trade creditor analysis introduces a layer of complexity that is unique to shipping industry restructurings and that must be carefully integrated into the critical vendor strategy.
Bunker fuel suppliers — principally Olympian F&S, but potentially other fuel suppliers as well — may assert maritime liens against specific vessels in TAI's fleet for unpaid fuel deliveries. A maritime lien arises by operation of law when a person provides "necessaries" (including fuel, supplies, repairs, and other items necessary for the operation of a vessel) to a vessel, and it attaches to the vessel as an in rem encumbrance regardless of whether the vessel's owner or operator authorized the transaction. 46 U.S.C. §31342. Maritime liens are enforceable through admiralty arrest proceedings in which the vessel itself is named as a defendant, and the lien is satisfied from the proceeds of a judicial sale of the arrested vessel.
In the Southern District of Texas, which sits within a major port city and has a well-developed admiralty docket, in rem maritime arrest proceedings may proceed in parallel with Chapter 11 proceedings, or they may be subject to the automatic stay as to property of the estate. The resolution of this tension depends on the classification of the vessel as "property of the estate" under 11 U.S.C. §541(a) and on whether the in rem admiralty proceeding is deemed an action "against the debtor" or an action "against the res" — a distinction that courts have not resolved uniformly. See, e.g., In re Millenium Seacarriers, Inc., 419 F.3d 83 (2d Cir. 2005) (addressing the interplay between maritime liens and the automatic stay).
The critical vendor strategy should account for the possibility that certain fuel suppliers — having failed to receive payment of their prepetition claims through the Chapter 11 process — may pursue in rem arrest of TAI-scheduled vessels as an alternative collection mechanism. The arrest of even a single vessel could disrupt TAI's scheduling operations, cause demurrage liability, and impair the debtor's ability to generate revenue during the Chapter 11 case. This risk further supports the designation of Olympian F&S as a Tier 1 critical vendor and the proactive engagement of fuel suppliers in the early days of the case.
The detailed analysis of the interplay between maritime liens and the Senior Secured Credit Facility's ship mortgages is set forth in the Memorandum on Maritime Lien and Ship Mortgage Act Considerations, dated December 18, 2022, and is incorporated herein by reference.
C. Cross-Border Complications
A TAI-only Chapter 11 filing in the Southern District of Texas would be a U.S. domestic proceeding, and its reach would be limited, as a practical matter, by the jurisdictional boundaries of the U.S. courts. Many of TAI's key vendors — including Olympian F&S, which is domiciled in Piraeus, Greece — are foreign entities that may not be subject to the personal jurisdiction of the bankruptcy court and that may not consider themselves bound by orders of a U.S. court, including orders approving critical vendor agreements.
Foreign vendors may respond to a TAI Chapter 11 filing in several ways. Some may choose to honor the critical vendor agreement and continue supply in exchange for payment of their prepetition claims, recognizing the economic benefit of maintaining the TAI relationship and the protections afforded by the critical vendor mechanism. Others, however, may disregard the automatic stay or refuse to honor critical vendor agreements, particularly if they have no assets or operations in the United States that could be reached by the bankruptcy court's enforcement mechanisms. In the most adverse scenario, a key foreign vendor could simply cease doing business with TAI and refuse to supply fuel, parts, or services, leaving TAI to seek alternative sources on potentially unfavorable terms.
This risk is particularly acute with respect to Olympian F&S, which, as a Greek entity, may be more inclined to pursue its remedies under Greek law or through admiralty proceedings in non-U.S. jurisdictions than to participate in the TAI Chapter 11 case. The enforcement of U.S. bankruptcy court orders against foreign entities involves considerations of international comity, the UNCITRAL Model Law on Cross-Border Insolvency (as enacted in Chapter 15 of the Bankruptcy Code), and the bilateral treaty and recognition framework between the United States and Greece.
The cross-border risks associated with the trade creditor universe further support the strategic preference for an out-of-court resolution of TAI's financial difficulties. An RSA-based restructuring that is negotiated and consummated outside of court would avoid triggering the vendor cooperation and jurisdictional enforcement issues inherent in a Chapter 11 filing, and would preserve TAI's trade relationships by ensuring that all vendors continue to be paid in full in the ordinary course.
To the extent that a Chapter 11 filing becomes necessary despite these concerns, we have engaged Vassiliou & Demetriou Law Offices (Alexandros Vassiliou, senior partner) in Athens to advise on Greek enforcement considerations for critical vendor agreements with Greek-domiciled suppliers. Mr. Vassiliou's team is currently reviewing the enforceability of U.S. bankruptcy court orders under Greek law and the potential for parallel insolvency or restructuring proceedings in Greece that could facilitate vendor cooperation. We will incorporate their analysis into the final critical vendor strategy as it becomes available.
IX. Recommended Next Steps
Based on the analysis set forth in this memorandum, we recommend the following next steps to advance the critical vendor and §503(b)(9) work stream in preparation for the contingent Chapter 11 filing:
1.  Complete detailed vendor-by-vendor analysis. Working with Diana Restrepo and KHP (James Calloway), finalize the comprehensive trade creditor database that catalogs each vendor by name, amount owed, category of goods or services provided, TAI vs. TSL allocation, critical vendor tier designation (Tier 1, Tier 2, or Tier 3), and estimated §503(b)(9) component. This database will form the factual foundation for the critical vendor motion and the supporting declaration, and will be set forth in Appendix A. The §503(b)(9) exposure should be quantified for each hypothetical petition date under consideration (mid-January 2023 as the base case, with sensitivity analyses for alternative petition dates corresponding to the forbearance expiration dates and RSA milestones).
2.  Prepare draft critical vendor motion. Draft the first-day motion seeking authority to pay prepetition claims of critical vendors pursuant to 11 U.S.C. §363(b)(1), together with the proposed order and supporting declaration. This motion is cross-referenced to the Draft First-Day Motion: Authority to Pay Critical Vendors, dated January 16, 2023. The declaration should be drafted for execution by Marcus Hale (President) or Jonathan Kurtz (Vice President, Operations) and should establish, with specificity, the debtor's dependence on each Tier 1 vendor, the absence of alternatives, and the risk of operational disruption.
3.  Determine aggregate cap. Propose a critical vendor payment cap in the estimated range of $5 million to $8 million for inclusion in the DIP budget and the first-day critical vendor motion. The cap should be set at a level sufficient to cover the Tier 1 vendors identified in the vendor analysis, with a reasonable cushion for Tier 2 vendors that may need to be added via supplemental motion during the first weeks of the case.
4.  Coordinate with DIP lenders. Ensure that the DIP budget, as set forth in the DIP Credit Agreement (marked draft dated December 22, 2022), includes adequate provision for critical vendor and §503(b)(9) payments. Engage with Nordbank International AG and Triton Credit Partners LP to confirm that the DIP facility's approved budget, milestones, and conditions do not restrict or unduly delay such payments. Anticipate potential objections from the Ad Hoc Group of Senior Secured Lenders (Whitfield, Crane & Burgess LLP) and prepare a memorandum of law supporting the critical vendor payments as necessary to preserve going-concern value.
5.  Monitor maritime lien exposure. Continue to assess Olympian F&S and other potential maritime lien claimants in coordination with the maritime lien analysis. If Olympian F&S or any other fuel supplier files a maritime lien or threatens an in rem arrest proceeding, escalate the matter immediately for review and consider whether preemptive engagement or a protective order may be appropriate.
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