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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

FROM: Amy Chesterton, Lead Associate, and Nathan Ikeda, Associate, Bankruptcy & Restructuring Group, Calderwood & Harkness LLP

TO: Nathaniel Bower, Responsible Partner, Bankruptcy & Restructuring Group, Calderwood & Harkness LLP

DATE: October 30, 2022

RE: Analysis of Forbearance Agreement Terms and Risks — Thalassa Shipping & Logistics SA / Thalassa Americas Inc.

MATTER NO.: 1044-00003

This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for internal use by Calderwood & Harkness LLP and should not be disclosed to any third party without the express written consent of the undersigned and responsible partner approval.

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I. Executive Summary

Calderwood & Harkness LLP ("C&H") was engaged on October 25, 2022, by Thalassa Shipping & Logistics Société Anonyme ("TSL") and its U.S. subsidiary, Thalassa Americas Inc. ("TAI"), to advise on Chapter 11 contingency planning and out-of-court restructuring alternatives in connection with TSL's deteriorating financial condition and multiple covenant defaults under its senior secured credit facility. The engagement follows a period of acute financial distress driven by the collapse of the Baltic Dry Index and the consequent compression of charter rates across TSL's dry-bulk and container fleet.

Central to our current engagement is the analysis of a Forbearance Agreement (the "Forbearance Agreement") that was executed on October 10, 2022 — approximately fifteen days prior to C&H's retention. The Forbearance Agreement was negotiated and executed with the assistance of TSL's Greek counsel, Vassiliou & Demetriou Law Offices, and TSL's financial advisor, Kensington Veltrian Partners LLC ("KHP"). C&H was not involved in the drafting or negotiation of the Forbearance Agreement. This memorandum constitutes C&H's post-engagement analysis of the executed agreement, which was received and annotated upon our engagement.

The Forbearance Agreement provides a 90-day standstill commencing on October 10, 2022 and expiring on January 8, 2023, during which the senior secured lender syndicate — led by Nordbank International AG as Administrative Agent and Collateral Agent, together with eight additional syndicate members with an aggregate facility commitment of $685 million — agrees to forbear from exercising remedies arising from three specified covenant defaults. The three defaults consist of a minimum liquidity covenant breach, a maximum net leverage ratio breach, and a minimum interest coverage ratio breach, each occurring in September 2022 as a consequence of the dramatic revenue and earnings decline experienced by TSL during the second and third quarters of 2022.

Overall Assessment. The Forbearance Agreement is heavily lender-favorable in its construction and terms. While it achieves its essential purpose — providing a temporary cessation of enforcement activity to allow TSL and TAI time to develop restructuring alternatives — it does so on terms that create significant ongoing risks for the borrowers. The agreement contains multiple hair-trigger termination events, several of which are subjective in nature and vest broad discretion in the lender group. It imposes onerous information delivery requirements that will strain TSL's already limited financial reporting resources and create strategic disclosure risks. Critically, default interest continues to accrue throughout the standstill period at SOFR + 575 basis points (comprising the base rate of SOFR + 375 bps plus a default rate premium of +200 bps), representing an incremental cash drain of approximately $2.7 million over the 90-day period. We recommend developing negotiating positions now for extension negotiations, which will likely need to commence by mid-December 2022 at the latest.

Key risks identified in this memorandum include:

(a) Narrow termination triggers that could end the standstill with limited or no cure opportunity, including a material adverse change provision that vests discretion entirely in the lender group;

(b) Cash drain from continued default interest accrual at the 200 bps premium, which increases the aggregate claim amount and further erodes TSL's already-deficient liquidity position;

(c) Enhanced information covenants that create both document production burdens and strategic disclosure risks, particularly through the management access provisions that give the Ad Hoc Group's advisors regular access to TSL/TAI leadership;

(d) No protection against acceleration or other action by Dralvecen Mezzanine Capital LLC ("BMC"), the second-lien holder of $112.3 million in mezzanine notes, which is not a party to the Forbearance Agreement;

(e) Potential interplay with the approaching semi-annual interest payment of $2,062,500 on the $50 million unsecured notes, due December 1, 2022, which if missed could trigger a cross-default under the Senior Secured Credit Agreement that falls outside the scope of the Forbearance Agreement's covered defaults; and

(f) Greek insolvency law exposure, as TSL is organized as a Greek Société Anonyme subject to the Hellenic Debt Settlement & Insolvency Code (Law 4738/2020).

Each of these risks is analyzed in detail below, together with our recommendations for mitigating actions and negotiating positions for the anticipated extension discussions.

II. Background and Context

A. The Parties to the Forbearance Agreement

The Forbearance Agreement was entered into by and among the following parties, whose roles and positions in the capital structure are described below.

Borrower and Co-Borrower. TSL serves as the borrower under the Senior Secured Credit Agreement. TSL is a Société Anonyme organized under the laws of the Hellenic Republic, with its principal offices located at 42 Akti Miaouli, Piraeus 18538, Greece. TSL is the parent entity of the Thalassa group, which operates a fleet of 50 vessels (38 dry-bulk carriers and 12 container vessels) engaged in international maritime commerce. TAI serves as the co-borrower for the U.S. Tranche / Term Loan B (the "TLB") in the amount of $85 million. TAI is a Delaware corporation with its principal office at 1400 McKinney Street, Suite 2200, Houston, TX 77010, and operates the group's Houston terminal facility, domestic freight brokerage business, and certain U.S.-flag vessel operations.

Administrative Agent and Collateral Agent. Nordbank International AG serves as Administrative Agent and Collateral Agent under the Credit Agreement. Nordbank is a Swiss-chartered banking institution with offices at Bahnhofstrasse 78, 8001 Zürich, Switzerland. The primary contact at Nordbank for purposes of the forbearance and the broader restructuring is Henrik Lüdemann, Managing Director, Shipping & Offshore Finance. Nordbank is also the largest single lender in the syndicate, holding $137 million of the $685 million total facility commitment, representing approximately 20.0% of the syndicate.

Lender Syndicate. The senior secured credit facility is held by a syndicate of nine institutional lenders, as follows:

All nine lender institutions are parties to the Forbearance Agreement, and each has executed the agreement through authorized signatories as reflected in the executed copies received by C&H.

Counsel to the Ad Hoc Group of Senior Secured Lenders. The Ad Hoc Group of Senior Secured Lenders (the "Ad Hoc Group") is represented by Whitfield, Crane & Burgess LLP ("WCB"), 51 West 52nd Street, 38th Floor, New York, NY 10019. The lead partner at WCB is Graham Whitfield III, with senior associate Priya Nandakumar serving as day-to-day lead. The Ad Hoc Group was formed in August 2022 in anticipation of the covenant defaults and comprises four of the nine syndicate members:

• Nordbank International AG — $137,000,000

• Harborstone Bank plc — $95,000,000

• Continental Maritime Lending GmbH — $72,000,000

• Triton Credit Partners LP — $68,000,000

The Ad Hoc Group holds collectively $372 million, representing 54.3% of the $685 million facility. This gives the Ad Hoc Group effective control over syndicate decisions that require majority lender consent, and positions it as the primary counterparty in any restructuring negotiation. WCB has retained Draycott Advisory Group LLC ("Draycott") as the Ad Hoc Group's financial advisor, with Vanessa Chow, Partner, serving as lead advisor.

Critical Note — Non-Parties. BMC, the holder of $112.3 million in second-lien mezzanine notes, is NOT a party to the Forbearance Agreement. Similarly, the holders of the $50 million in unsecured notes, and Garrison Trust Company as indenture trustee for the unsecured notes, are NOT parties to the Forbearance Agreement. The implications of these exclusions are discussed in detail in Section IV below.

B. The Underlying Defaults

Three distinct covenant defaults under the Senior Secured Credit Agreement triggered the need for the Forbearance Agreement. Each is described below.

1. Minimum Liquidity Covenant Breach (September 15, 2022). Section 7.12(a) of the Credit Agreement requires TSL to maintain unrestricted cash and cash equivalents (measured at the consolidated level) of not less than $40 million at all times. This is a "springing" covenant tested on a continuous basis rather than at quarter-end. As of September 15, 2022, TSL's actual unrestricted liquidity had fallen to $27.3 million, representing a shortfall of $12.7 million, or approximately 31.8% below the covenant threshold. The breach was reported to Nordbank by TSL's CFO, Irini Dalakoura, on September 19, 2022, within the 5-business-day notification period required by the Credit Agreement. The liquidity decline was driven by a combination of reduced charter revenues, the accumulation of bunker fuel costs (including a $9.2 million payable to Olympian Fuel & Supply SA), and regularly scheduled debt service payments made during Q3 2022 (including approximately $10 million in TLA amortization and approximately $14 million in quarterly interest).

2. Maximum Net Leverage Ratio Breach (September 30, 2022). Section 7.13(a) of the Credit Agreement requires that the Net Leverage Ratio (defined as Net Debt divided by LTM Consolidated EBITDA) shall not exceed 5.50x, tested quarterly at each fiscal quarter-end. As of September 30, 2022, the actual Net Leverage Ratio was 7.82x, calculated as follows:

• Net Debt: $770.9 million (total indebtedness of $847.3 million less unrestricted cash of approximately $27.3 million and restricted cash of approximately $49.1 million)

• LTM Consolidated EBITDA: $98.6 million (trailing twelve months ended September 30, 2022)

• Ratio: $770.9M ÷ $98.6M = 7.82x

• Covenant maximum: 5.50x

• Excess: 2.32x above the covenant threshold

The leverage ratio breach was substantial. TSL's LTM EBITDA of $98.6 million represented a sharp decline from the $189.4 million LTM EBITDA reported as of December 31, 2021, reflecting the severe compression in charter rates during 2022.

3. Minimum Interest Coverage Ratio Breach (September 30, 2022). Section 7.13(b) of the Credit Agreement requires that the Interest Coverage Ratio (defined as LTM Consolidated EBITDA divided by LTM Interest Expense) shall not be less than 2.50x, tested quarterly. As of September 30, 2022, the actual Interest Coverage Ratio was 1.74x, calculated as follows:

• LTM Consolidated EBITDA: $98.6 million

• LTM Interest Expense: $56.7 million (including cash interest on senior secured facility, mezzanine notes, and unsecured notes, but excluding PIK interest on mezzanine notes)

• Ratio: $98.6M ÷ $56.7M = 1.74x

• Covenant minimum: 2.50x

• Shortfall: 0.76x below the covenant threshold

Root Causes. The underlying driver of all three covenant defaults was the dramatic deterioration in the global dry-bulk shipping market during 2022. The Baltic Dry Index (BDI), the primary benchmark for dry-bulk freight rates, declined approximately 58% between January 2022 and September 2022. This decline directly impacted TSL's fleet earnings. TSL's average daily time-charter equivalent (TCE) fell from $24,800 per day (FY2021 average across the fleet) to $11,200 per day (Q3 2022 average), a decline of approximately 54.8%. The revenue impact was correspondingly severe: TSL's consolidated revenue declined from €1.42 billion for FY2021 to an estimated €987 million for FY2022 (a decline of approximately 30.5%), and TAI's revenue declined from $312 million for FY2021 to an estimated $198 million for FY2022 (a decline of approximately 36.5%). Meanwhile, TSL's cost structure remained largely fixed, as vessel operating expenses, crew costs, and debt service are not responsive to short-term fluctuations in freight rates.

C. The Senior Secured Credit Facility — Key Terms

The Senior Secured Credit Agreement (the "Credit Agreement") was originally entered into on June 15, 2019, by and among TSL (as borrower), TAI (as co-borrower for the TLB), Nordbank International AG (as administrative agent and collateral agent), and the lender syndicate described above. A summary of the Credit Agreement's key terms is provided below, with reference to the specific provisions relevant to the forbearance analysis.

Total Commitment. The Credit Agreement provides for total commitments of $685 million, composed of three tranches:

• Term Loan A ("TLA"): $400 million, amortizing in equal quarterly installments of $10 million per quarter, commencing on September 15, 2019. As of September 30, 2022, thirteen quarterly amortization payments had been made (Q3 2019 through Q3 2022, inclusive), totaling $130 million in aggregate principal payments. The outstanding TLA balance as of September 30, 2022 was therefore $270 million.

• Revolving Credit Facility ("Revolver"): $200 million total commitment. As of September 30, 2022, $185 million was drawn and outstanding, with only $15 million of undrawn capacity remaining. The high utilization of the Revolver reflects TSL's increasing liquidity pressures throughout 2022 and the progressive drawdown of available credit to fund operations and debt service.

• U.S. Tranche / Term Loan B ("TLB"): $85 million, non-amortizing with bullet maturity. TAI is the co-borrower for this tranche. The full $85 million remains outstanding as of September 30, 2022.

• Total Outstanding Principal: $540 million ($270M + $185M + $85M) as of September 30, 2022.

Maturity. All tranches of the Credit Agreement mature on June 15, 2024. This represents approximately twenty months from the date of this memorandum, a timeframe that both constrains and motivates the restructuring process.

Interest Rate. The Credit Agreement bears interest at SOFR + 375 basis points per annum. During a period of default, the default rate provision adds an additional 200 basis points, bringing the effective rate to SOFR + 575 basis points. As discussed in Section III.C below, the Forbearance Agreement does not waive or suspend the accrual of default interest.

Collateral. The obligations under the Credit Agreement are secured by first-priority liens on substantially all of TSL's and TAI's assets, including:

• First-priority ship mortgages on 38 dry-bulk carriers and 12 container vessels (50 vessels total);

• First-priority leasehold mortgage on the Houston terminal lease (TAI's principal operating facility);

• First-priority security interest in all accounts receivable of TSL and TAI;

• First-priority pledge of the equity interests in TAI; and

• First-priority pledges of the equity interests in 14 vessel-owning special purpose vehicles ("SPVs") organized under the laws of the Republic of the marshall Islands, the Republic of Liberia, and the Hellenic Republic.

Fleet Valuation. The fleet was last appraised at an aggregate value of $891 million in January 2022 by Drakos Maritime Valuations Ltd. Given the BDI decline and broader market deterioration since that appraisal date, a re-appraisal has been commissioned and is being conducted by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, Managing Director) as of November 1, 2022. The results of the re-appraisal were not available as of the date of this memorandum but are expected imminently. We anticipate that the updated appraisal will show a material decline from the January 2022 figure, which could have significant implications for the restructuring analysis and the lenders' willingness to extend the forbearance.

CUSIP Identifier. The TLA bears CUSIP number 87265BAA7.

D. Other Relevant Indebtedness Not Covered by the Forbearance Agreement

In addition to the senior secured credit facility, TSL and TAI have the following material indebtedness, none of which is covered by the Forbearance Agreement.

Mezzanine Notes. BMC holds $112.3 million in outstanding mezzanine notes. The mezzanine notes were originally issued in the principal amount of $100 million on June 15, 2019, concurrently with the closing of the senior secured credit facility. The notes bear interest at 11.5% per annum on a PIK toggle basis. Since Q2 2022, all interest has been paid in kind (PIK), resulting in $12.3 million of PIK interest capitalized to principal through September 30, 2022, bringing the outstanding balance to $112.3 million. The mezzanine notes mature on December 15, 2024, six months after the maturity of the senior secured facility. The notes are secured by second-priority liens on the same collateral package as the senior secured facility, governed by an Intercreditor Agreement dated June 15, 2019, by and between Nordbank (as first-lien agent) and BMC (as second-lien holder). The primary contact at BMC is Rebecca Quimby, Senior Partner. BMC is represented by Kellner & Foss LLP, with Theodore Kellner serving as lead counsel.

Unsecured Notes. TSL has $50 million in outstanding 8.25% Senior Unsecured Notes. Interest is payable semi-annually on June 1 and December 1 of each year, at a rate of 8.25% per annum (cash pay). The next interest payment of $2,062,500 is due on December 1, 2022. The unsecured notes mature on March 1, 2025. Garrison Trust Company, 100 Wall Street, 16th Floor, New York, NY 10005, serves as indenture trustee. The notes bear CUSIP number 87265BAB5. An informal group of unsecured noteholders has been formed, represented by Ashford, Brightmoor Group & McKay PC, with Carolyn Brightmoor Group serving as lead partner. The unsecured notes are structurally and contractually subordinate to both the senior secured facility and the mezzanine notes, and are unsecured.

Intercompany Note. TAI owes TSL $76.4 million under an intercompany promissory note. The intercompany note bears interest at 5.0% per annum and is fully subordinated to all external indebtedness. The intercompany note reflects the net accumulation of historical intercompany funding from TSL to TAI for capital expenditures (including the Houston terminal build-out), working capital, and the TLB funding mechanism. As discussed in Section III.F below, the Forbearance Agreement imposes restrictions on intercompany transfers that could affect the ongoing servicing relationship under this note.

Trade Payables. As of September 30, 2022, TSL and TAI had approximately $38.7 million in outstanding trade payables. The largest single trade creditor is Olympian Fuel & Supply SA, which is owed $9.2 million for bunker fuel deliveries. The accumulation of trade payables reflects the liquidity pressures described above and the prioritization of debt service over vendor payments during Q3 2022.

Total Indebtedness Summary. The table below summarizes TSL's and TAI's total indebtedness as of September 30, 2022:

Note: Total external debt (excluding intercompany note and trade payables) is $702,300,000. Total funded debt (all instruments) is $779,100,000 (excluding trade payables). Total obligations including trade payables are approximately $817.4 million. The $847.3 million figure referenced in the Forbearance Agreement background recitals includes certain accrued interest and fees not captured in the principal amounts above.

III. Detailed Analysis of Forbearance Agreement Terms

This Section provides a detailed analysis of each material provision of the Forbearance Agreement, together with our assessment of the associated risks and our recommendations for remedial action in the context of extension negotiations or other restructuring discussions.

A. Scope of Forbearance

The scope of the forbearance is defined in Section 2 of the Forbearance Agreement. The lender syndicate's agreement to forbear from the exercise of remedies is limited to the three specified covenant defaults described in Section II.B above, each of which occurred on or before the execution date of October 10, 2022. Specifically, the covered defaults are:

(i) the Minimum Liquidity Covenant breach that occurred on September 15, 2022 (Section 7.12(a) of the Credit Agreement);

(ii) the Maximum Net Leverage Ratio breach that occurred as of September 30, 2022 (Section 7.13(a) of the Credit Agreement); and

(iii) the Minimum Interest Coverage Ratio breach that occurred as of September 30, 2022 (Section 7.13(b) of the Credit Agreement).

The forbearance is expressly limited to these three enumerated defaults and does not extend to any other existing or future event of default under the Credit Agreement. Section 2(b) of the Forbearance Agreement makes this limitation explicit, providing that the forbearance "shall not constitute a forbearance with respect to, and shall not be deemed to constitute a waiver of, any Default or Event of Default other than the Specified Defaults."

The Forbearance Agreement further provides that it shall not be construed as a waiver of the specified defaults themselves. The defaults continue to exist during the standstill period; the lenders have merely agreed not to exercise their remedies in respect of those defaults during the standstill period. This distinction is important because it means that (a) default interest continues to accrue (see Section III.C), (b) the defaults remain available as a basis for remedy enforcement upon expiration or termination of the standstill, and (c) the existence of the defaults may have continuing consequences under other provisions of the Credit Agreement or other agreements.

Risk Analysis. The narrow scope of the forbearance creates a critical gap in protection. The forbearance does NOT cover:

• Any future covenant breaches for subsequent testing periods, including the next quarterly test date of December 31, 2022. Given the continued market deterioration, it is virtually certain that the net leverage ratio and interest coverage ratio will remain in breach at December 31, 2022, and may in fact worsen. While this would arguably constitute a continuation of the same underlying condition rather than a "new" default, the Forbearance Agreement does not clarify whether rolling covenant breaches at subsequent testing dates are covered as part of the "Specified Defaults" or constitute new defaults.

• Payment defaults of any kind. If TSL or TAI fails to make a scheduled interest or principal payment on the senior secured facility during the standstill period, this would constitute a new event of default not covered by the forbearance.

• Cross-default events triggered by defaults under other material indebtedness. This is the most significant gap and relates directly to the December 1, 2022 unsecured note interest payment, discussed in detail in Section IV.B below.

The approaching December 1, 2022 semi-annual interest payment of $2,062,500 on the $50 million unsecured notes presents the most immediate and concrete risk arising from the narrow scope of the forbearance. If TSL misses this payment and the 30-day cure period under the unsecured note indenture expires without cure (i.e., January 1, 2023), the resulting event of default under the unsecured notes could trigger the cross-default provision in Section 8.01(e) of the Senior Secured Credit Agreement. Such a cross-default would constitute a new event of default — entirely separate from the three "Specified Defaults" — and would fall outside the scope of the Forbearance Agreement. This could provide the lender syndicate with grounds to terminate the standstill and exercise remedies immediately.

It bears emphasis that the forbearance applies to both TSL and TAI in their respective capacities as borrower and co-borrower. To the extent any termination event occurs with respect to either entity, the standstill terminates as to both.

B. Standstill Period

The standstill period established by the Forbearance Agreement is 90 days, commencing on October 10, 2022 (the execution date) and expiring at 5:00 p.m. Eastern Time on January 8, 2023 (the "Termination Date"), unless earlier terminated pursuant to the termination events described in Section III.D below. During the standstill period, the lender syndicate, acting through and directed by Nordbank as Administrative Agent and Collateral Agent, agrees not to:

(a) accelerate the outstanding $540 million in principal under the Credit Agreement;

(b) enforce any liens or security interests against any of the collateral, including but not limited to the 50 vessels (38 dry-bulk carriers and 12 container vessels), the Houston terminal lease, all accounts receivable, and the equity interests in TAI and the 14 vessel-owning SPVs;

(d) commence or participate in any litigation, arbitration, or other proceedings to collect or recover amounts owing under the Credit Agreement; or

(e) exercise any other rights or remedies available under the Credit Agreement, any ancillary security document, or applicable law in respect of the Specified Defaults.

The standstill is a collective agreement binding on all nine syndicate lenders. Individual lenders do not have the ability to "break ranks" and exercise remedies unilaterally during the standstill period, so long as the forbearance remains in effect. This is consistent with the requirement under the Credit Agreement that enforcement action be directed by the Required Lenders (defined as holders of more than 50% of the aggregate commitments) through the Administrative Agent.

Observation on Duration. A 90-day standstill is a relatively short window for a restructuring of this complexity and magnitude. The TSL/TAI capital structure involves multiple creditor constituencies (senior secured lenders, mezzanine lender, unsecured noteholders, trade creditors, and equity), cross-border elements (Greek parent, U.S. subsidiary, Intercreditor Agreement governed by New York law, vessel mortgages registered in multiple flag-state jurisdictions), and operational complexities (50 vessels trading internationally, Houston terminal operations, intercompany funding mechanisms). Even in the most efficient restructuring scenarios, the timeline from initial financial advisor engagement through execution of a comprehensive restructuring support agreement ("RSA") or filing of a prepackaged plan of reorganization typically spans four to six months for a case of this size.

The 90-day period, which has already partially elapsed (20 days have passed since execution), provides approximately 70 days of remaining standstill as of the date of this memorandum. This is sufficient time for the development and initial circulation of a restructuring term sheet, but is unlikely to be sufficient for the completion of a fully negotiated comprehensive deal. Accordingly, we recommend anticipating the need for at least one, and potentially two, extensions of the standstill period beyond January 8, 2023. The first extension should target a minimum additional 60 days (through approximately early March 2023), with the possibility of a further extension through April or May 2023 if negotiations are progressing in good faith.

C. Default Interest Accrual

Section 4(a) of the Forbearance Agreement addresses the treatment of default interest during the standstill period. This is one of the most consequential economic provisions of the agreement and, in our assessment, one of the most lender-favorable.

The Forbearance Agreement expressly provides that default interest shall continue to accrue throughout the standstill period at the default rate specified in the Credit Agreement. Under Section 2.08(b) of the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, all outstanding obligations shall bear interest at a rate per annum equal to the rate otherwise applicable plus 200 basis points. Because the Forbearance Agreement provides that the Specified Defaults continue to exist during the standstill (the forbearance is not a waiver), the default rate of SOFR + 575 bps (375 bps base rate + 200 bps default premium) applies to the entire $540 million in outstanding principal for the duration of the standstill.

Quantification of Incremental Default Interest. The incremental cost of the 200 basis point default premium is substantial:

• Outstanding principal subject to default rate: $540,000,000

• Default rate premium: 200 bps (2.00% per annum)

• Annual incremental default interest: $540,000,000 × 0.02 = $10,800,000

• Incremental default interest over the 90-day standstill period: $10,800,000 × (90/365) = approximately $2,663,014

• Total default interest (inclusive of base rate) is substantially higher; at an assumed SOFR of approximately 3.85% as of October 2022, the all-in default rate is approximately 9.60% (3.85% + 5.75%), producing annualized interest of approximately $51,840,000, or approximately $12,789,863 over the 90-day period

The Forbearance Agreement does NOT waive or defer payment of default interest. It merely reserves the lenders' right to collect it. Default interest accrues and is added to the outstanding obligations, increasing the total claim amount. While the Credit Agreement provides for monthly interest payments, the forbearance's standstill on enforcement means the lenders cannot compel immediate cash payment of default interest; however, the accrued default interest will be owed and payable upon expiration or termination of the standstill.

Risk Assessment. The continued accrual of default interest has several adverse consequences for TSL and TAI:

First, it increases the aggregate senior secured claim, potentially shifting value away from junior creditors in any restructuring allocation and complicating intercreditor negotiations.

Second, it reduces the effective liquidity available to fund operations and restructuring costs. Even though default interest is not being demanded in cash during the standstill, it represents a growing obligation that will need to be addressed in any comprehensive restructuring.

Third, it exacerbates the already-breached minimum liquidity position. TSL's unrestricted cash of $27.3 million is already $12.7 million below the $40 million covenant threshold. Every dollar of accrued default interest that is ultimately demanded in cash further erodes the company's ability to fund operations and professional fees.

Fourth, it creates a compounding effect: as default interest capitalizes, the principal base on which future interest accrues increases, accelerating the cash drain.

Recommendation for Extension Negotiations. We strongly recommend seeking a retroactive waiver of the 200 bps default interest premium from October 10, 2022 forward in any extension negotiation. If a full waiver is not obtainable, an alternative position would be to seek conversion of default interest to PIK (payment-in-kind) rather than cash pay, which would preserve liquidity while acknowledging the lenders' entitlement to the contractual default rate. This will be a significant point of negotiation with the Ad Hoc Group, as the lenders will resist any concession that reduces the economic cost of the defaults to TSL. The annual savings from a full waiver — approximately $10.8 million — is material and would meaningfully improve TSL's liquidity position.

D. Termination Events

Section 5 of the Forbearance Agreement enumerates the events that permit the lender syndicate (acting through Nordbank as Administrative Agent) to terminate the standstill prior to the January 8, 2023 Termination Date. The termination events are numerous and, in several cases, afford the lenders broad discretion to end the standstill. Each is described and analyzed below.

1. Material Breach by TSL or TAI (Section 5(a)). The standstill terminates immediately if TSL or TAI materially breaches any representation, warranty, or covenant contained in the Forbearance Agreement itself. No cure period is provided. This termination trigger is distinct from breaches of the underlying Credit Agreement; it relates specifically to TSL's and TAI's obligations under the Forbearance Agreement, including the enhanced information covenants (Section III.E), the negative covenants (Section III.F), and the representations and warranties made in the Forbearance Agreement (including representations as to the accuracy of financial information, the absence of undisclosed defaults, and the authority to enter into the agreement).

2. New Defaults Under the Credit Agreement (Section 5(b)). The standstill terminates immediately upon the occurrence of any Default or Event of Default under the Credit Agreement beyond the three Specified Defaults. As discussed in Section III.A, this creates a direct and immediate risk in connection with any new covenant breach, payment default, or cross-default that may arise during the standstill period. The Q4 2022 covenant testing date of December 31, 2022 presents a particular risk, as the financial covenants will almost certainly remain in breach.

3. Cross-Default Events (Section 5(c)). The standstill terminates immediately upon the occurrence of any default under the mezzanine notes, the unsecured notes, or any other material indebtedness of TSL or TAI that constitutes a cross-default event under Section 8.01(e) of the Credit Agreement. This trigger creates a direct linkage between the Forbearance Agreement and events occurring in TSL's other debt instruments — instruments as to which TSL has no forbearance protection. This is the mechanism through which a missed December 1, 2022 unsecured note interest payment could cascade into a termination of the senior secured forbearance.

4. Failure to Deliver Information (Section 5(d)). The standstill terminates immediately if TSL or TAI fails to deliver any information, report, or financial statement required under the enhanced information covenants of the Forbearance Agreement (Section III.E below) within the specified deadlines. Notably, no cure period is provided. This means that even a minor, inadvertent delay in the delivery of a weekly 13-week cash flow forecast or a biweekly fleet status report could, at least in theory, give the lenders grounds to terminate the standstill.

5. Commencement of Insolvency Proceedings (Section 5(e)). The standstill terminates immediately upon the commencement by TSL, TAI, or any material subsidiary of any voluntary insolvency proceeding, including a Chapter 11 filing, a Chapter 15 filing, or Greek insolvency proceedings under Law 4738/2020. This termination trigger is standard in forbearance agreements and serves to ensure that the lender group retains the right to participate in and influence any formal insolvency process from its inception. It also terminates upon the commencement of any involuntary insolvency proceeding that is not dismissed within 60 days.

6. Material Adverse Change (Section 5(f)). The standstill terminates immediately upon the occurrence of any "Material Adverse Change" in the financial condition, business, operations, assets, or prospects of TSL, TAI, or any material subsidiary. The MAC definition in the Forbearance Agreement is broadly drafted and does not contain exclusions for industry-wide downturns, macroeconomic conditions, or market-wide fluctuations. This is a subjective standard that vests considerable discretion in the lender group. In practice, the determination of whether a MAC has occurred would be made by Nordbank as Administrative Agent, potentially acting at the direction of the Ad Hoc Group.

7. Failure to Engage a Financial Advisor (Section 5(g)). The standstill terminates if TSL fails to engage a financial advisor acceptable to the Ad Hoc Group within 15 days of the execution date (i.e., by October 25, 2022). This condition has been satisfied by the engagement of KHP on October 15, 2022. James Calloway, Managing Director at KHP, has been confirmed as the engagement lead, and the Ad Hoc Group (through WCB) has confirmed its acceptance of the KHP engagement.

8. Liens or Judgments (Section 5(h)). The standstill terminates immediately upon the entry of any judgment or the attachment of any lien against TSL, TAI, or any material subsidiary in excess of a $5 million threshold (whether individually or in the aggregate). This trigger is designed to prevent the erosion of collateral value during the standstill through litigation or enforcement actions by third parties.

9. Asset Dispositions Outside the Ordinary Course (Section 5(i)). The standstill terminates immediately if TSL or TAI disposes of any asset outside the ordinary course of business without the prior written consent of Nordbank (as Administrative Agent). This is consistent with the negative covenant on asset sales (Section III.F below) but operates as an independent termination trigger.

Risk Assessment. Taken as a whole, the termination provisions are structured to give the lender group maximum flexibility to exit the forbearance at short notice. Several of the triggers are "hair-trigger" in nature, meaning they operate without cure periods, grace periods, or notice requirements. The absence of cure periods for information delivery failures (Section 5(d)) is particularly concerning, as the enhanced reporting requirements (discussed below) are extensive and time-sensitive, and even diligent compliance efforts may occasionally encounter delay.

The MAC clause (Section 5(f)) is the most concerning provision from TSL's perspective. The MAC standard is inherently subjective, and the Forbearance Agreement's MAC definition does not contain any of the customary carve-outs that are typically negotiated in acquisition agreements (and increasingly in forbearance agreements). Specifically, the definition does not exclude:

• Changes in general economic or market conditions;

• Changes in the shipping industry generally (including BDI declines or charter rate compression);

• Changes in applicable law or regulation; or

• Changes in accounting standards or principles.

The absence of these exclusions means that the continued decline of the BDI or a further reduction in fleet valuations — developments that are entirely outside TSL's control — could potentially be cited as a MAC justifying termination of the standstill. Given that the Drakos Maritime Valuations re-appraisal is expected imminently and is likely to show a significant decline from the January 2022 valuation of $891 million, this risk is not merely theoretical.

The cross-default trigger (Section 5(c)) creates a particularly dangerous dynamic in connection with the December 1, 2022 unsecured note interest payment. If that payment is missed and the 30-day cure period under the unsecured note indenture expires on January 1, 2023, the resulting unsecured note default could trigger a cross-default under the Credit Agreement, which in turn would trigger termination of the forbearance under Section 5(c) — leaving TSL with only seven days of effective standstill remaining (January 1 through January 8), or potentially none at all if the lenders act to terminate immediately upon the cross-default.

Recommendations for Extension Negotiations. In any extension negotiation, we recommend seeking the following modifications to the termination provisions:

(a) Cure periods. Add minimum cure periods of five (5) business days for information delivery failures under Section 5(d) and for technical breaches of the Forbearance Agreement under Section 5(a), provided the breach is capable of cure.

(b) Narrowed MAC definition. Modify the MAC definition to exclude shipping industry-wide market deterioration, including declines in the BDI, charter rate compression, and fleet value reductions that are attributable to market-wide conditions rather than company-specific events. This exclusion should be drafted to cover both realized declines and the reporting of such declines in updated appraisals or financial statements.

(c) Majority lender consent for subjective triggers. Require that termination based on subjective grounds (specifically, the MAC trigger under Section 5(f)) be approved by the Required Lenders (holders of more than 50% of commitments) rather than being exercisable by Nordbank as agent in its sole discretion.

(d) Cross-default carve-out. Amend the forbearance to provide that a cross-default arising from a missed interest payment on the unsecured notes shall not constitute a termination event under the forbearance, subject to TSL's good-faith engagement with the unsecured noteholder group regarding a comprehensive resolution.

E. Information and Reporting Covenants

Section 6 of the Forbearance Agreement imposes a significantly enhanced set of information delivery and reporting obligations on TSL and TAI during the standstill period. These obligations go well beyond the financial reporting requirements of the underlying Credit Agreement and are designed to provide the lender group and its advisors with real-time visibility into TSL's operations, financial condition, and restructuring progress. Each obligation is described and analyzed below.

1. 13-Week Cash Flow Forecasts (Section 6(a)). TSL is required to prepare and deliver weekly rolling 13-week cash flow forecasts to Nordbank (as Administrative Agent) and to the Ad Hoc Group (through WCB and Draycott Advisory Group LLC). The forecasts must be delivered by 5:00 p.m. Eastern Time each Friday and must cover the 13-week period commencing on the following Monday. Each forecast must include: (a) projected cash receipts by source (charter revenue, freight brokerage income, terminal revenue, other income); (b) projected cash disbursements by category (vessel operating expenses, crew costs, bunker fuel, port charges, debt service, professional fees, capital expenditures, other); (c) beginning and ending cash balances for each week; and (d) variance analysis showing actual results compared to the prior week's forecast for the elapsed period.

KHP (James Calloway) is currently in the process of developing the initial 13-week cash flow model and establishing the data feeds necessary for weekly updates. The first forecast was delivered on October 21, 2022, and weekly delivery has been maintained since. Coordination between KHP, TSL's finance team (Irini Dalakoura, CFO), and TAI's finance team (Diana Restrepo, VP Finance) will be essential to maintain timely and accurate production.

2. Monthly Financial Statements (Section 6(b)). TSL is required to deliver unaudited consolidated monthly financial statements, together with fleet operating reports and vessel-level profit and loss statements, within 20 calendar days following the end of each calendar month. The monthly financial package must include a consolidated balance sheet, income statement, and cash flow statement for the month, together with year-to-date results and comparison to the prior year period. Fleet operating reports must provide vessel-by-vessel detail on revenue, operating expenses, off-hire days, and utilization rates.

The 20-day deadline for monthly financials is aggressive given TSL's current staffing constraints in its finance department, the complexity of consolidating results across 14 vessel-owning SPVs and the TAI subsidiary, and the need for coordination with Grainger, Holt & Associates LLP (Malcolm Holt, Lead Engagement Partner), TSL's independent auditors. While GH&A is not involved in the preparation of monthly unaudited financials, certain reconciliation and close procedures conducted by GH&A in connection with the annual audit may create resource conflicts during the period.

3. Fleet Status Reports (Section 6(c)). TSL is required to deliver biweekly fleet status reports (on the 1st and 15th of each month, or the next business day) providing vessel-by-vessel detail on: (a) current employment status (time charter, voyage charter, spot market, idle); (b) current and contracted charter rates; (c) off-hire days and reasons therefor; (d) any vessel casualties, detentions, port state control deficiencies, or classification society findings; and (e) any pending or anticipated drydocking or maintenance requirements.

4. Material Event Notifications (Section 6(d)). TSL and TAI are required to provide prompt written notice to Nordbank and the Ad Hoc Group (within two (2) business days of occurrence or of TSL/TAI becoming aware) of any material event, including without limitation: (a) any regulatory action, investigation, or inquiry by any governmental or maritime authority; (b) the commencement of any litigation or arbitration involving TSL, TAI, or any material subsidiary; (c) any crew incident, serious injury, or fatality; (d) any environmental event, spill, or discharge; (e) any material customer or contract dispute; (f) any change in insurance coverage; and (g) any event that could reasonably be expected to have a Material Adverse Effect.

5. Access to Management (Section 6(e)). The Ad Hoc Group, acting through WCB and Draycott, has the right to schedule calls and meetings with TSL management (Georgios Andreadis, CEO; Irini Dalakoura, CFO) and TAI management (Marcus Hale, President; Diana Restrepo, VP Finance) on not less than 48 hours' prior written notice. TSL and TAI have agreed to make their senior management "reasonably available" for such calls and meetings. There is no limitation on the frequency of such calls, and the subject matter is unrestricted except that TSL and TAI are not required to disclose information protected by attorney-client privilege (though this carve-out is narrowly stated).

6. Access to Books and Records (Section 6(f)). The lender syndicate and its advisors (including WCB and Draycott) have the right, during normal business hours and upon reasonable prior notice, to inspect the books, records, accounts, and financial records of TSL at its headquarters at 42 Akti Miaouli, Piraeus 18538, Greece, and of TAI at its principal office at 1400 McKinney Street, Suite 2200, Houston, TX 77010. This right extends to the records of any material subsidiary.

Risk Analysis. The enhanced information and reporting covenants present both operational and strategic risks:

Operational Burden. The weekly 13-week cash flow requirement, while standard in distressed situations, is resource-intensive. Each weekly iteration requires gathering current data from vessel operating accounts, charter party counterparties, the Houston terminal, and various corporate bank accounts across multiple jurisdictions. TSL's finance team is already operating under significant strain, and the addition of biweekly fleet status reports and enhanced monthly financial packages will further tax limited personnel resources. Any delay or error in these deliverables — even an inadvertent one — could trigger a termination event under Section 5(d).

20-Day Monthly Financials Deadline. The 20-day deadline is aggressive by industry standards for a company of TSL's complexity. Prior to the forbearance, TSL's monthly close process typically took 30-35 days. Compressing this to 20 days will require process improvements and potentially additional temporary staffing support, both of which have cost implications that further pressure the constrained cash position.

Material Event Notifications — Breadth. The material event notification requirement is broadly drafted and could be triggered by routine operational matters. In a fleet of 50 vessels operating worldwide, crew incidents, minor port state control deficiencies, and operational disputes with charterers or port agents occur with regularity. The two-business-day notice requirement creates a compliance burden that will require the establishment of internal protocols to ensure that all potentially notifiable events are identified, evaluated, and reported promptly. We recommend establishing a dedicated reporting protocol with a designated point person at both TSL (suggested: Irini Dalakoura or a direct report) and TAI (suggested: Diana Restrepo) to triage and process notification obligations.

Strategic Disclosure Risks. The management access provisions create significant strategic risks. Conversations with the Ad Hoc Group's advisors (WCB and Draycott) during management calls could inadvertently reveal negotiating positions, privileged strategy discussions, or other sensitive information. While the Forbearance Agreement includes a carve-out for attorney-client privileged information, this carve-out is narrowly drafted and may not cover all categories of strategically sensitive information (such as management's internal assessment of enterprise value, the company's Chapter 11 contingency planning, or the Kostandinos family's willingness and capacity to contribute new equity). We recommend implementing protocols requiring (a) preparation of talking points in advance of each management call, reviewed and approved by C&H; (b) participation of C&H counsel (or designated associate) on each call to interpose privilege objections if necessary; and (c) a post-call debrief to assess what information was shared and whether any strategic exposure was created.

F. Negative Covenants During the Standstill

In addition to the enhanced information requirements, the Forbearance Agreement imposes a set of additional negative covenants that restrict TSL's and TAI's operational and financial flexibility during the standstill period. These covenants are set forth in Section 7 of the Forbearance Agreement and include the following:

1. No New Indebtedness (Section 7(a)). TSL and TAI shall not incur, assume, or permit to exist any indebtedness (as defined in the Credit Agreement) beyond that existing as of the execution date, except for ordinary-course trade credit and payables incurred in the ordinary course of business consistent with past practice.

2. No New Liens (Section 7(b)). TSL and TAI shall not create, incur, assume, or permit to exist any lien on any property or asset, except for permitted liens as defined in the Credit Agreement and liens existing as of the execution date.

3. No Asset Sales Outside the Ordinary Course (Section 7(c)). TSL and TAI shall not sell, transfer, lease, or otherwise dispose of any property or assets outside the ordinary course of business if such disposition would result in proceeds exceeding $1 million individually or $5 million in the aggregate, without the prior written consent of Nordbank (as Administrative Agent). This restriction is significant because asset sales — particularly vessel sales — could be an important component of any restructuring plan, and the consent requirement gives the lender group effective veto power over any such transaction during the standstill.

4. No Dividends or Distributions (Section 7(d)). TSL shall not declare or pay any dividend or make any distribution to its equity holders, including KFO Holdings SA and the Kostandinos family. This covenant is unsurprising given the financial distress and is consistent with the existing restricted payment covenants in the Credit Agreement, which are independently triggered during a period of default.

5. No Intercompany Transfers (Section 7(e)). Neither TSL nor TAI shall make any intercompany transfer, loan, advance, or payment exceeding $500,000 in any single transaction, or $2 million in the aggregate during the standstill period, without the prior written consent of Nordbank (as Administrative Agent). This restriction is relevant given the $76.4 million intercompany note from TAI to TSL and the ongoing operational fund flows between the two entities.

6. No Capital Expenditures Beyond Agreed Budget (Section 7(f)). TSL and TAI shall not make capital expenditures in excess of the amounts set forth in an agreed capital expenditure budget attached as an exhibit to the Forbearance Agreement. The agreed budget was developed in consultation with KHP and reflects essential maintenance capital expenditures (including scheduled drydockings and classification society requirements) but excludes any growth or expansion capital.

7. No Changes to Senior Management (Section 7(g)). TSL and TAI shall not terminate, replace, or make any material change to the roles or responsibilities of senior management — defined to include Georgios Andreadis (CEO of TSL), Irini Dalakoura (CFO of TSL), Marcus Hale (President of TAI), and Diana Restrepo (VP Finance of TAI) — without prior written notice to and consultation with the Ad Hoc Group.

Risk Analysis. The intercompany transfer restriction in Section 7(e) is potentially the most problematic of the negative covenants for day-to-day operations. TAI's Houston terminal operations and domestic freight brokerage business require regular intercompany funding from TSL to cover operational expenses, payroll, and vendor payments. The historical monthly intercompany funding flow from TSL to TAI has averaged approximately $3.5 million to $4.2 million per month, well in excess of the $500,000 per-transaction limit and the $2 million aggregate limit during the standstill period. While the Forbearance Agreement allows Nordbank to consent to transfers above these thresholds, the requirement of prior written consent introduces delay and uncertainty that could disrupt TAI's operations.

We recommend seeking, in any extension negotiation, an increase in the intercompany transfer consent threshold from $500,000 per transaction and $2 million aggregate to at least $2 million per transaction and $8 million aggregate, or alternatively, a carve-out for ordinary-course operational transfers consistent with historical patterns. Separately, TAI's VP Finance, Diana Restrepo, should be consulted immediately regarding near-term intercompany funding needs to ensure that the existing thresholds do not create operational disruption before any extension is negotiated.

The management change covenant in Section 7(g) is also noteworthy. While it does not give the Ad Hoc Group a veto right over management changes, the "notice and consultation" requirement effectively creates a soft veto, as any management change made over the objection of the Ad Hoc Group could be characterized as a breach of the consultation obligation and thereby trigger termination under Section 5(a). This could be relevant if operational circumstances require management changes during the standstill period.

G. Reservation of Rights and Acknowledgments

Sections 8 and 9 of the Forbearance Agreement contain standard but consequential reservation-of-rights and acknowledgment provisions.

Reservation of Rights (Section 8). The lender syndicate, Nordbank as Administrative Agent, and each individual lender expressly reserve all rights and remedies under the Credit Agreement, the ancillary security documents, and applicable law. The reservation provides that the forbearance shall not be deemed a waiver of any right or remedy, whether now existing or hereafter arising, and that upon the expiration or termination of the standstill period, the lenders may exercise any and all such rights and remedies as if the Forbearance Agreement had never been executed. This reservation ensures that the passage of the 90-day standstill period does not prejudice the lenders' enforcement position, and that any arguments regarding waiver by conduct, laches, or estoppel are foreclosed.

Acknowledgments by TSL and TAI (Section 9(a)). TSL and TAI acknowledge and confirm the following:

(i) the existence and continuance of the Specified Defaults;

(ii) that the Specified Defaults constitute Events of Default under the Credit Agreement;

(iii) the validity and enforceability of the Credit Agreement, the ancillary security documents, and all obligations thereunder;

(iv) the validity, priority, and enforceability of the first-priority security interests and liens securing the obligations under the Credit Agreement;

(v) the accuracy of the outstanding principal balances as set forth in the Forbearance Agreement; and

(vi) the waiver of any defenses, counterclaims, set-offs, or recoupments against the lenders or the Administrative Agent with respect to the Specified Defaults, the obligations under the Credit Agreement, or the validity of the security interests.

Release of Claims (Section 9(b)). TSL and TAI provide a broad, unconditional release of all claims, causes of action, demands, and liabilities against the lender syndicate, Nordbank as Administrative Agent and Collateral Agent, and their respective officers, directors, employees, agents, attorneys, and advisors (including WCB and Draycott), arising on or before the execution date of the Forbearance Agreement. The release covers all claims whether known or unknown, asserted or unasserted, and whether arising under contract, tort, statute, or otherwise.

Risk Assessment. The acknowledgment and release provisions are entirely one-sided. TSL and TAI receive no reciprocal release from the lender group. The default acknowledgment is particularly consequential because it could limit TSL's ability in future negotiations or litigation to contest the calculation methodology used to determine the covenant breaches, or to argue that the breaches were technical or curable in nature. By acknowledging the defaults as "Events of Default" (rather than merely "Defaults"), TSL has confirmed that the more severe category of contractual breach has occurred, triggering the full panoply of remedies under the Credit Agreement.

The release of claims is similarly one-sided and broad in scope. While the release is limited to claims arising on or before the execution date (October 10, 2022), it covers the entire period from the origination of the Credit Agreement through that date, encompassing any potential claims TSL might have regarding the lenders' conduct during the pre-forbearance negotiation period, including any claims related to the manner in which the lenders communicated or threatened enforcement action.

Recommendation. In any extension of the Forbearance Agreement, we recommend seeking the following modifications:

(a) Mutual release. Negotiate a reciprocal release covering claims arising during the forbearance and extension periods, so that TSL receives the same protection against post-closing lender claims as the lenders receive against borrower claims.

(b) Preservation of default interest disputes. Include an express reservation of TSL's right to contest the calculation of default interest, including the applicable SOFR benchmark, compounding methodology, and any alleged overpayments or miscalculations.

H. Fees and Expenses

Section 10 of the Forbearance Agreement requires TSL and TAI to pay the reasonable and documented professional fees and expenses of the following parties:

(a) Nordbank International AG, in its capacity as Administrative Agent and Collateral Agent, including reasonable internal costs and out-of-pocket expenses;

(b) Whitfield, Crane & Burgess LLP, as counsel to the Ad Hoc Group; and

This obligation is in addition to TSL's own advisory costs, which include the fees and expenses of:

(a) Calderwood & Harkness LLP (C&H), as restructuring counsel to TSL and TAI;

(b) Kensington Veltrian Partners LLC (KHP), as financial advisor to TSL and TAI; and

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
FROM: Amy Chesterton, Lead Associate, and Nathan Ikeda, Associate, Bankruptcy & Restructuring Group, Calderwood & Harkness LLP
TO: Nathaniel Bower, Responsible Partner, Bankruptcy & Restructuring Group, Calderwood & Harkness LLP
DATE: October 30, 2022
RE: Analysis of Forbearance Agreement Terms and Risks — Thalassa Shipping & Logistics SA / Thalassa Americas Inc.
MATTER NO.: 1044-00003
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for internal use by Calderwood & Harkness LLP and should not be disclosed to any third party without the express written consent of the undersigned and responsible partner approval.
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I. Executive Summary
Calderwood & Harkness LLP ("C&H") was engaged on October 25, 2022, by Thalassa Shipping & Logistics Société Anonyme ("TSL") and its U.S. subsidiary, Thalassa Americas Inc. ("TAI"), to advise on Chapter 11 contingency planning and out-of-court restructuring alternatives in connection with TSL's deteriorating financial condition and multiple covenant defaults under its senior secured credit facility. The engagement follows a period of acute financial distress driven by the collapse of the Baltic Dry Index and the consequent compression of charter rates across TSL's dry-bulk and container fleet.
Central to our current engagement is the analysis of a Forbearance Agreement (the "Forbearance Agreement") that was executed on October 10, 2022 — approximately fifteen days prior to C&H's retention. The Forbearance Agreement was negotiated and executed with the assistance of TSL's Greek counsel, Vassiliou & Demetriou Law Offices, and TSL's financial advisor, Kensington Veltrian Partners LLC ("KHP"). C&H was not involved in the drafting or negotiation of the Forbearance Agreement. This memorandum constitutes C&H's post-engagement analysis of the executed agreement, which was received and annotated upon our engagement.
The Forbearance Agreement provides a 90-day standstill commencing on October 10, 2022 and expiring on January 8, 2023, during which the senior secured lender syndicate — led by Nordbank International AG as Administrative Agent and Collateral Agent, together with eight additional syndicate members with an aggregate facility commitment of $685 million — agrees to forbear from exercising remedies arising from three specified covenant defaults. The three defaults consist of a minimum liquidity covenant breach, a maximum net leverage ratio breach, and a minimum interest coverage ratio breach, each occurring in September 2022 as a consequence of the dramatic revenue and earnings decline experienced by TSL during the second and third quarters of 2022.
Overall Assessment. The Forbearance Agreement is heavily lender-favorable in its construction and terms. While it achieves its essential purpose — providing a temporary cessation of enforcement activity to allow TSL and TAI time to develop restructuring alternatives — it does so on terms that create significant ongoing risks for the borrowers. The agreement contains multiple hair-trigger termination events, several of which are subjective in nature and vest broad discretion in the lender group. It imposes onerous information delivery requirements that will strain TSL's already limited financial reporting resources and create strategic disclosure risks. Critically, default interest continues to accrue throughout the standstill period at SOFR + 575 basis points (comprising the base rate of SOFR + 375 bps plus a default rate premium of +200 bps), representing an incremental cash drain of approximately $2.7 million over the 90-day period. We recommend developing negotiating positions now for extension negotiations, which will likely need to commence by mid-December 2022 at the latest.
Key risks identified in this memorandum include:
(a) Narrow termination triggers that could end the standstill with limited or no cure opportunity, including a material adverse change provision that vests discretion entirely in the lender group;
(b) Cash drain from continued default interest accrual at the 200 bps premium, which increases the aggregate claim amount and further erodes TSL's already-deficient liquidity position;
(c) Enhanced information covenants that create both document production burdens and strategic disclosure risks, particularly through the management access provisions that give the Ad Hoc Group's advisors regular access to TSL/TAI leadership;
(d) No protection against acceleration or other action by Dralvecen Mezzanine Capital LLC ("BMC"), the second-lien holder of $112.3 million in mezzanine notes, which is not a party to the Forbearance Agreement;
(e) Potential interplay with the approaching semi-annual interest payment of $2,062,500 on the $50 million unsecured notes, due December 1, 2022, which if missed could trigger a cross-default under the Senior Secured Credit Agreement that falls outside the scope of the Forbearance Agreement's covered defaults; and
(f) Greek insolvency law exposure, as TSL is organized as a Greek Société Anonyme subject to the Hellenic Debt Settlement & Insolvency Code (Law 4738/2020).
Each of these risks is analyzed in detail below, together with our recommendations for mitigating actions and negotiating positions for the anticipated extension discussions.
II. Background and Context
A. The Parties to the Forbearance Agreement
The Forbearance Agreement was entered into by and among the following parties, whose roles and positions in the capital structure are described below.
Borrower and Co-Borrower. TSL serves as the borrower under the Senior Secured Credit Agreement. TSL is a Société Anonyme organized under the laws of the Hellenic Republic, with its principal offices located at 42 Akti Miaouli, Piraeus 18538, Greece. TSL is the parent entity of the Thalassa group, which operates a fleet of 50 vessels (38 dry-bulk carriers and 12 container vessels) engaged in international maritime commerce. TAI serves as the co-borrower for the U.S. Tranche / Term Loan B (the "TLB") in the amount of $85 million. TAI is a Delaware corporation with its principal office at 1400 McKinney Street, Suite 2200, Houston, TX 77010, and operates the group's Houston terminal facility, domestic freight brokerage business, and certain U.S.-flag vessel operations.
Administrative Agent and Collateral Agent. Nordbank International AG serves as Administrative Agent and Collateral Agent under the Credit Agreement. Nordbank is a Swiss-chartered banking institution with offices at Bahnhofstrasse 78, 8001 Zürich, Switzerland. The primary contact at Nordbank for purposes of the forbearance and the broader restructuring is Henrik Lüdemann, Managing Director, Shipping & Offshore Finance. Nordbank is also the largest single lender in the syndicate, holding $137 million of the $685 million total facility commitment, representing approximately 20.0% of the syndicate.
Lender Syndicate. The senior secured credit facility is held by a syndicate of nine institutional lenders, as follows:
All nine lender institutions are parties to the Forbearance Agreement, and each has executed the agreement through authorized signatories as reflected in the executed copies received by C&H.
Counsel to the Ad Hoc Group of Senior Secured Lenders. The Ad Hoc Group of Senior Secured Lenders (the "Ad Hoc Group") is represented by Whitfield, Crane & Burgess LLP ("WCB"), 51 West 52nd Street, 38th Floor, New York, NY 10019. The lead partner at WCB is Graham Whitfield III, with senior associate Priya Nandakumar serving as day-to-day lead. The Ad Hoc Group was formed in August 2022 in anticipation of the covenant defaults and comprises four of the nine syndicate members:
• Nordbank International AG — $137,000,000
• Harborstone Bank plc — $95,000,000
• Continental Maritime Lending GmbH — $72,000,000
• Triton Credit Partners LP — $68,000,000
The Ad Hoc Group holds collectively $372 million, representing 54.3% of the $685 million facility. This gives the Ad Hoc Group effective control over syndicate decisions that require majority lender consent, and positions it as the primary counterparty in any restructuring negotiation. WCB has retained Draycott Advisory Group LLC ("Draycott") as the Ad Hoc Group's financial advisor, with Vanessa Chow, Partner, serving as lead advisor.
Critical Note — Non-Parties. BMC, the holder of $112.3 million in second-lien mezzanine notes, is NOT a party to the Forbearance Agreement. Similarly, the holders of the $50 million in unsecured notes, and Garrison Trust Company as indenture trustee for the unsecured notes, are NOT parties to the Forbearance Agreement. The implications of these exclusions are discussed in detail in Section IV below.
B. The Underlying Defaults
Three distinct covenant defaults under the Senior Secured Credit Agreement triggered the need for the Forbearance Agreement. Each is described below.
1. Minimum Liquidity Covenant Breach (September 15, 2022). Section 7.12(a) of the Credit Agreement requires TSL to maintain unrestricted cash and cash equivalents (measured at the consolidated level) of not less than $40 million at all times. This is a "springing" covenant tested on a continuous basis rather than at quarter-end. As of September 15, 2022, TSL's actual unrestricted liquidity had fallen to $27.3 million, representing a shortfall of $12.7 million, or approximately 31.8% below the covenant threshold. The breach was reported to Nordbank by TSL's CFO, Irini Dalakoura, on September 19, 2022, within the 5-business-day notification period required by the Credit Agreement. The liquidity decline was driven by a combination of reduced charter revenues, the accumulation of bunker fuel costs (including a $9.2 million payable to Olympian Fuel & Supply SA), and regularly scheduled debt service payments made during Q3 2022 (including approximately $10 million in TLA amortization and approximately $14 million in quarterly interest).
2. Maximum Net Leverage Ratio Breach (September 30, 2022). Section 7.13(a) of the Credit Agreement requires that the Net Leverage Ratio (defined as Net Debt divided by LTM Consolidated EBITDA) shall not exceed 5.50x, tested quarterly at each fiscal quarter-end. As of September 30, 2022, the actual Net Leverage Ratio was 7.82x, calculated as follows:
• Net Debt: $770.9 million (total indebtedness of $847.3 million less unrestricted cash of approximately $27.3 million and restricted cash of approximately $49.1 million)
• LTM Consolidated EBITDA: $98.6 million (trailing twelve months ended September 30, 2022)
• Ratio: $770.9M ÷ $98.6M = 7.82x
• Covenant maximum: 5.50x
• Excess: 2.32x above the covenant threshold
The leverage ratio breach was substantial. TSL's LTM EBITDA of $98.6 million represented a sharp decline from the $189.4 million LTM EBITDA reported as of December 31, 2021, reflecting the severe compression in charter rates during 2022.
3. Minimum Interest Coverage Ratio Breach (September 30, 2022). Section 7.13(b) of the Credit Agreement requires that the Interest Coverage Ratio (defined as LTM Consolidated EBITDA divided by LTM Interest Expense) shall not be less than 2.50x, tested quarterly. As of September 30, 2022, the actual Interest Coverage Ratio was 1.74x, calculated as follows:
• LTM Consolidated EBITDA: $98.6 million
• LTM Interest Expense: $56.7 million (including cash interest on senior secured facility, mezzanine notes, and unsecured notes, but excluding PIK interest on mezzanine notes)
• Ratio: $98.6M ÷ $56.7M = 1.74x
• Covenant minimum: 2.50x
• Shortfall: 0.76x below the covenant threshold
Root Causes. The underlying driver of all three covenant defaults was the dramatic deterioration in the global dry-bulk shipping market during 2022. The Baltic Dry Index (BDI), the primary benchmark for dry-bulk freight rates, declined approximately 58% between January 2022 and September 2022. This decline directly impacted TSL's fleet earnings. TSL's average daily time-charter equivalent (TCE) fell from $24,800 per day (FY2021 average across the fleet) to $11,200 per day (Q3 2022 average), a decline of approximately 54.8%. The revenue impact was correspondingly severe: TSL's consolidated revenue declined from €1.42 billion for FY2021 to an estimated €987 million for FY2022 (a decline of approximately 30.5%), and TAI's revenue declined from $312 million for FY2021 to an estimated $198 million for FY2022 (a decline of approximately 36.5%). Meanwhile, TSL's cost structure remained largely fixed, as vessel operating expenses, crew costs, and debt service are not responsive to short-term fluctuations in freight rates.
C. The Senior Secured Credit Facility — Key Terms
The Senior Secured Credit Agreement (the "Credit Agreement") was originally entered into on June 15, 2019, by and among TSL (as borrower), TAI (as co-borrower for the TLB), Nordbank International AG (as administrative agent and collateral agent), and the lender syndicate described above. A summary of the Credit Agreement's key terms is provided below, with reference to the specific provisions relevant to the forbearance analysis.
Total Commitment. The Credit Agreement provides for total commitments of $685 million, composed of three tranches:
• Term Loan A ("TLA"): $400 million, amortizing in equal quarterly installments of $10 million per quarter, commencing on September 15, 2019. As of September 30, 2022, thirteen quarterly amortization payments had been made (Q3 2019 through Q3 2022, inclusive), totaling $130 million in aggregate principal payments. The outstanding TLA balance as of September 30, 2022 was therefore $270 million.
• Revolving Credit Facility ("Revolver"): $200 million total commitment. As of September 30, 2022, $185 million was drawn and outstanding, with only $15 million of undrawn capacity remaining. The high utilization of the Revolver reflects TSL's increasing liquidity pressures throughout 2022 and the progressive drawdown of available credit to fund operations and debt service.
• U.S. Tranche / Term Loan B ("TLB"): $85 million, non-amortizing with bullet maturity. TAI is the co-borrower for this tranche. The full $85 million remains outstanding as of September 30, 2022.
• Total Outstanding Principal: $540 million ($270M + $185M + $85M) as of September 30, 2022.
Maturity. All tranches of the Credit Agreement mature on June 15, 2024. This represents approximately twenty months from the date of this memorandum, a timeframe that both constrains and motivates the restructuring process.
Interest Rate. The Credit Agreement bears interest at SOFR + 375 basis points per annum. During a period of default, the default rate provision adds an additional 200 basis points, bringing the effective rate to SOFR + 575 basis points. As discussed in Section III.C below, the Forbearance Agreement does not waive or suspend the accrual of default interest.
Collateral. The obligations under the Credit Agreement are secured by first-priority liens on substantially all of TSL's and TAI's assets, including:
• First-priority ship mortgages on 38 dry-bulk carriers and 12 container vessels (50 vessels total);
• First-priority leasehold mortgage on the Houston terminal lease (TAI's principal operating facility);
• First-priority security interest in all accounts receivable of TSL and TAI;
• First-priority pledge of the equity interests in TAI; and
• First-priority pledges of the equity interests in 14 vessel-owning special purpose vehicles ("SPVs") organized under the laws of the Republic of the marshall Islands, the Republic of Liberia, and the Hellenic Republic.
Fleet Valuation. The fleet was last appraised at an aggregate value of $891 million in January 2022 by Drakos Maritime Valuations Ltd. Given the BDI decline and broader market deterioration since that appraisal date, a re-appraisal has been commissioned and is being conducted by Drakos Maritime Valuations Ltd. (Captain Nikos Drakos, Managing Director) as of November 1, 2022. The results of the re-appraisal were not available as of the date of this memorandum but are expected imminently. We anticipate that the updated appraisal will show a material decline from the January 2022 figure, which could have significant implications for the restructuring analysis and the lenders' willingness to extend the forbearance.
CUSIP Identifier. The TLA bears CUSIP number 87265BAA7.
D. Other Relevant Indebtedness Not Covered by the Forbearance Agreement
In addition to the senior secured credit facility, TSL and TAI have the following material indebtedness, none of which is covered by the Forbearance Agreement.
Mezzanine Notes. BMC holds $112.3 million in outstanding mezzanine notes. The mezzanine notes were originally issued in the principal amount of $100 million on June 15, 2019, concurrently with the closing of the senior secured credit facility. The notes bear interest at 11.5% per annum on a PIK toggle basis. Since Q2 2022, all interest has been paid in kind (PIK), resulting in $12.3 million of PIK interest capitalized to principal through September 30, 2022, bringing the outstanding balance to $112.3 million. The mezzanine notes mature on December 15, 2024, six months after the maturity of the senior secured facility. The notes are secured by second-priority liens on the same collateral package as the senior secured facility, governed by an Intercreditor Agreement dated June 15, 2019, by and between Nordbank (as first-lien agent) and BMC (as second-lien holder). The primary contact at BMC is Rebecca Quimby, Senior Partner. BMC is represented by Kellner & Foss LLP, with Theodore Kellner serving as lead counsel.
Unsecured Notes. TSL has $50 million in outstanding 8.25% Senior Unsecured Notes. Interest is payable semi-annually on June 1 and December 1 of each year, at a rate of 8.25% per annum (cash pay). The next interest payment of $2,062,500 is due on December 1, 2022. The unsecured notes mature on March 1, 2025. Garrison Trust Company, 100 Wall Street, 16th Floor, New York, NY 10005, serves as indenture trustee. The notes bear CUSIP number 87265BAB5. An informal group of unsecured noteholders has been formed, represented by Ashford, Brightmoor Group & McKay PC, with Carolyn Brightmoor Group serving as lead partner. The unsecured notes are structurally and contractually subordinate to both the senior secured facility and the mezzanine notes, and are unsecured.
Intercompany Note. TAI owes TSL $76.4 million under an intercompany promissory note. The intercompany note bears interest at 5.0% per annum and is fully subordinated to all external indebtedness. The intercompany note reflects the net accumulation of historical intercompany funding from TSL to TAI for capital expenditures (including the Houston terminal build-out), working capital, and the TLB funding mechanism. As discussed in Section III.F below, the Forbearance Agreement imposes restrictions on intercompany transfers that could affect the ongoing servicing relationship under this note.
Trade Payables. As of September 30, 2022, TSL and TAI had approximately $38.7 million in outstanding trade payables. The largest single trade creditor is Olympian Fuel & Supply SA, which is owed $9.2 million for bunker fuel deliveries. The accumulation of trade payables reflects the liquidity pressures described above and the prioritization of debt service over vendor payments during Q3 2022.
Total Indebtedness Summary. The table below summarizes TSL's and TAI's total indebtedness as of September 30, 2022:
Note: Total external debt (excluding intercompany note and trade payables) is $702,300,000. Total funded debt (all instruments) is $779,100,000 (excluding trade payables). Total obligations including trade payables are approximately $817.4 million. The $847.3 million figure referenced in the Forbearance Agreement background recitals includes certain accrued interest and fees not captured in the principal amounts above.
III. Detailed Analysis of Forbearance Agreement Terms
This Section provides a detailed analysis of each material provision of the Forbearance Agreement, together with our assessment of the associated risks and our recommendations for remedial action in the context of extension negotiations or other restructuring discussions.
A. Scope of Forbearance
The scope of the forbearance is defined in Section 2 of the Forbearance Agreement. The lender syndicate's agreement to forbear from the exercise of remedies is limited to the three specified covenant defaults described in Section II.B above, each of which occurred on or before the execution date of October 10, 2022. Specifically, the covered defaults are:
(i) the Minimum Liquidity Covenant breach that occurred on September 15, 2022 (Section 7.12(a) of the Credit Agreement);
(ii) the Maximum Net Leverage Ratio breach that occurred as of September 30, 2022 (Section 7.13(a) of the Credit Agreement); and
(iii) the Minimum Interest Coverage Ratio breach that occurred as of September 30, 2022 (Section 7.13(b) of the Credit Agreement).
The forbearance is expressly limited to these three enumerated defaults and does not extend to any other existing or future event of default under the Credit Agreement. Section 2(b) of the Forbearance Agreement makes this limitation explicit, providing that the forbearance "shall not constitute a forbearance with respect to, and shall not be deemed to constitute a waiver of, any Default or Event of Default other than the Specified Defaults."
The Forbearance Agreement further provides that it shall not be construed as a waiver of the specified defaults themselves. The defaults continue to exist during the standstill period; the lenders have merely agreed not to exercise their remedies in respect of those defaults during the standstill period. This distinction is important because it means that (a) default interest continues to accrue (see Section III.C), (b) the defaults remain available as a basis for remedy enforcement upon expiration or termination of the standstill, and (c) the existence of the defaults may have continuing consequences under other provisions of the Credit Agreement or other agreements.
Risk Analysis. The narrow scope of the forbearance creates a critical gap in protection. The forbearance does NOT cover:
• Any future covenant breaches for subsequent testing periods, including the next quarterly test date of December 31, 2022. Given the continued market deterioration, it is virtually certain that the net leverage ratio and interest coverage ratio will remain in breach at December 31, 2022, and may in fact worsen. While this would arguably constitute a continuation of the same underlying condition rather than a "new" default, the Forbearance Agreement does not clarify whether rolling covenant breaches at subsequent testing dates are covered as part of the "Specified Defaults" or constitute new defaults.
• Payment defaults of any kind. If TSL or TAI fails to make a scheduled interest or principal payment on the senior secured facility during the standstill period, this would constitute a new event of default not covered by the forbearance.
• Cross-default events triggered by defaults under other material indebtedness. This is the most significant gap and relates directly to the December 1, 2022 unsecured note interest payment, discussed in detail in Section IV.B below.
The approaching December 1, 2022 semi-annual interest payment of $2,062,500 on the $50 million unsecured notes presents the most immediate and concrete risk arising from the narrow scope of the forbearance. If TSL misses this payment and the 30-day cure period under the unsecured note indenture expires without cure (i.e., January 1, 2023), the resulting event of default under the unsecured notes could trigger the cross-default provision in Section 8.01(e) of the Senior Secured Credit Agreement. Such a cross-default would constitute a new event of default — entirely separate from the three "Specified Defaults" — and would fall outside the scope of the Forbearance Agreement. This could provide the lender syndicate with grounds to terminate the standstill and exercise remedies immediately.
It bears emphasis that the forbearance applies to both TSL and TAI in their respective capacities as borrower and co-borrower. To the extent any termination event occurs with respect to either entity, the standstill terminates as to both.
B. Standstill Period
The standstill period established by the Forbearance Agreement is 90 days, commencing on October 10, 2022 (the execution date) and expiring at 5:00 p.m. Eastern Time on January 8, 2023 (the "Termination Date"), unless earlier terminated pursuant to the termination events described in Section III.D below. During the standstill period, the lender syndicate, acting through and directed by Nordbank as Administrative Agent and Collateral Agent, agrees not to:
(a) accelerate the outstanding $540 million in principal under the Credit Agreement;
(b) enforce any liens or security interests against any of the collateral, including but not limited to the 50 vessels (38 dry-bulk carriers and 12 container vessels), the Houston terminal lease, all accounts receivable, and the equity interests in TAI and the 14 vessel-owning SPVs;
(c) exercise set-off rights against any deposit accounts of TSL or TAI maintained with any syndicate lender;
(d) commence or participate in any litigation, arbitration, or other proceedings to collect or recover amounts owing under the Credit Agreement; or
(e) exercise any other rights or remedies available under the Credit Agreement, any ancillary security document, or applicable law in respect of the Specified Defaults.
The standstill is a collective agreement binding on all nine syndicate lenders. Individual lenders do not have the ability to "break ranks" and exercise remedies unilaterally during the standstill period, so long as the forbearance remains in effect. This is consistent with the requirement under the Credit Agreement that enforcement action be directed by the Required Lenders (defined as holders of more than 50% of the aggregate commitments) through the Administrative Agent.
Observation on Duration. A 90-day standstill is a relatively short window for a restructuring of this complexity and magnitude. The TSL/TAI capital structure involves multiple creditor constituencies (senior secured lenders, mezzanine lender, unsecured noteholders, trade creditors, and equity), cross-border elements (Greek parent, U.S. subsidiary, Intercreditor Agreement governed by New York law, vessel mortgages registered in multiple flag-state jurisdictions), and operational complexities (50 vessels trading internationally, Houston terminal operations, intercompany funding mechanisms). Even in the most efficient restructuring scenarios, the timeline from initial financial advisor engagement through execution of a comprehensive restructuring support agreement ("RSA") or filing of a prepackaged plan of reorganization typically spans four to six months for a case of this size.
The 90-day period, which has already partially elapsed (20 days have passed since execution), provides approximately 70 days of remaining standstill as of the date of this memorandum. This is sufficient time for the development and initial circulation of a restructuring term sheet, but is unlikely to be sufficient for the completion of a fully negotiated comprehensive deal. Accordingly, we recommend anticipating the need for at least one, and potentially two, extensions of the standstill period beyond January 8, 2023. The first extension should target a minimum additional 60 days (through approximately early March 2023), with the possibility of a further extension through April or May 2023 if negotiations are progressing in good faith.
C. Default Interest Accrual
Section 4(a) of the Forbearance Agreement addresses the treatment of default interest during the standstill period. This is one of the most consequential economic provisions of the agreement and, in our assessment, one of the most lender-favorable.
The Forbearance Agreement expressly provides that default interest shall continue to accrue throughout the standstill period at the default rate specified in the Credit Agreement. Under Section 2.08(b) of the Credit Agreement, upon the occurrence and during the continuance of an Event of Default, all outstanding obligations shall bear interest at a rate per annum equal to the rate otherwise applicable plus 200 basis points. Because the Forbearance Agreement provides that the Specified Defaults continue to exist during the standstill (the forbearance is not a waiver), the default rate of SOFR + 575 bps (375 bps base rate + 200 bps default premium) applies to the entire $540 million in outstanding principal for the duration of the standstill.
Quantification of Incremental Default Interest. The incremental cost of the 200 basis point default premium is substantial:
• Outstanding principal subject to default rate: $540,000,000
• Default rate premium: 200 bps (2.00% per annum)
• Annual incremental default interest: $540,000,000 × 0.02 = $10,800,000
• Incremental default interest over the 90-day standstill period: $10,800,000 × (90/365) = approximately $2,663,014
• Total default interest (inclusive of base rate) is substantially higher; at an assumed SOFR of approximately 3.85% as of October 2022, the all-in default rate is approximately 9.60% (3.85% + 5.75%), producing annualized interest of approximately $51,840,000, or approximately $12,789,863 over the 90-day period
The Forbearance Agreement does NOT waive or defer payment of default interest. It merely reserves the lenders' right to collect it. Default interest accrues and is added to the outstanding obligations, increasing the total claim amount. While the Credit Agreement provides for monthly interest payments, the forbearance's standstill on enforcement means the lenders cannot compel immediate cash payment of default interest; however, the accrued default interest will be owed and payable upon expiration or termination of the standstill.
Risk Assessment. The continued accrual of default interest has several adverse consequences for TSL and TAI:
First, it increases the aggregate senior secured claim, potentially shifting value away from junior creditors in any restructuring allocation and complicating intercreditor negotiations.
Second, it reduces the effective liquidity available to fund operations and restructuring costs. Even though default interest is not being demanded in cash during the standstill, it represents a growing obligation that will need to be addressed in any comprehensive restructuring.
Third, it exacerbates the already-breached minimum liquidity position. TSL's unrestricted cash of $27.3 million is already $12.7 million below the $40 million covenant threshold. Every dollar of accrued default interest that is ultimately demanded in cash further erodes the company's ability to fund operations and professional fees.
Fourth, it creates a compounding effect: as default interest capitalizes, the principal base on which future interest accrues increases, accelerating the cash drain.
Recommendation for Extension Negotiations. We strongly recommend seeking a retroactive waiver of the 200 bps default interest premium from October 10, 2022 forward in any extension negotiation. If a full waiver is not obtainable, an alternative position would be to seek conversion of default interest to PIK (payment-in-kind) rather than cash pay, which would preserve liquidity while acknowledging the lenders' entitlement to the contractual default rate. This will be a significant point of negotiation with the Ad Hoc Group, as the lenders will resist any concession that reduces the economic cost of the defaults to TSL. The annual savings from a full waiver — approximately $10.8 million — is material and would meaningfully improve TSL's liquidity position.
D. Termination Events
Section 5 of the Forbearance Agreement enumerates the events that permit the lender syndicate (acting through Nordbank as Administrative Agent) to terminate the standstill prior to the January 8, 2023 Termination Date. The termination events are numerous and, in several cases, afford the lenders broad discretion to end the standstill. Each is described and analyzed below.
1. Material Breach by TSL or TAI (Section 5(a)). The standstill terminates immediately if TSL or TAI materially breaches any representation, warranty, or covenant contained in the Forbearance Agreement itself. No cure period is provided. This termination trigger is distinct from breaches of the underlying Credit Agreement; it relates specifically to TSL's and TAI's obligations under the Forbearance Agreement, including the enhanced information covenants (Section III.E), the negative covenants (Section III.F), and the representations and warranties made in the Forbearance Agreement (including representations as to the accuracy of financial information, the absence of undisclosed defaults, and the authority to enter into the agreement).
2. New Defaults Under the Credit Agreement (Section 5(b)). The standstill terminates immediately upon the occurrence of any Default or Event of Default under the Credit Agreement beyond the three Specified Defaults. As discussed in Section III.A, this creates a direct and immediate risk in connection with any new covenant breach, payment default, or cross-default that may arise during the standstill period. The Q4 2022 covenant testing date of December 31, 2022 presents a particular risk, as the financial covenants will almost certainly remain in breach.
3. Cross-Default Events (Section 5(c)). The standstill terminates immediately upon the occurrence of any default under the mezzanine notes, the unsecured notes, or any other material indebtedness of TSL or TAI that constitutes a cross-default event under Section 8.01(e) of the Credit Agreement. This trigger creates a direct linkage between the Forbearance Agreement and events occurring in TSL's other debt instruments — instruments as to which TSL has no forbearance protection. This is the mechanism through which a missed December 1, 2022 unsecured note interest payment could cascade into a termination of the senior secured forbearance.
4. Failure to Deliver Information (Section 5(d)). The standstill terminates immediately if TSL or TAI fails to deliver any information, report, or financial statement required under the enhanced information covenants of the Forbearance Agreement (Section III.E below) within the specified deadlines. Notably, no cure period is provided. This means that even a minor, inadvertent delay in the delivery of a weekly 13-week cash flow forecast or a biweekly fleet status report could, at least in theory, give the lenders grounds to terminate the standstill.
5. Commencement of Insolvency Proceedings (Section 5(e)). The standstill terminates immediately upon the commencement by TSL, TAI, or any material subsidiary of any voluntary insolvency proceeding, including a Chapter 11 filing, a Chapter 15 filing, or Greek insolvency proceedings under Law 4738/2020. This termination trigger is standard in forbearance agreements and serves to ensure that the lender group retains the right to participate in and influence any formal insolvency process from its inception. It also terminates upon the commencement of any involuntary insolvency proceeding that is not dismissed within 60 days.
6. Material Adverse Change (Section 5(f)). The standstill terminates immediately upon the occurrence of any "Material Adverse Change" in the financial condition, business, operations, assets, or prospects of TSL, TAI, or any material subsidiary. The MAC definition in the Forbearance Agreement is broadly drafted and does not contain exclusions for industry-wide downturns, macroeconomic conditions, or market-wide fluctuations. This is a subjective standard that vests considerable discretion in the lender group. In practice, the determination of whether a MAC has occurred would be made by Nordbank as Administrative Agent, potentially acting at the direction of the Ad Hoc Group.
7. Failure to Engage a Financial Advisor (Section 5(g)). The standstill terminates if TSL fails to engage a financial advisor acceptable to the Ad Hoc Group within 15 days of the execution date (i.e., by October 25, 2022). This condition has been satisfied by the engagement of KHP on October 15, 2022. James Calloway, Managing Director at KHP, has been confirmed as the engagement lead, and the Ad Hoc Group (through WCB) has confirmed its acceptance of the KHP engagement.
8. Liens or Judgments (Section 5(h)). The standstill terminates immediately upon the entry of any judgment or the attachment of any lien against TSL, TAI, or any material subsidiary in excess of a $5 million threshold (whether individually or in the aggregate). This trigger is designed to prevent the erosion of collateral value during the standstill through litigation or enforcement actions by third parties.
9. Asset Dispositions Outside the Ordinary Course (Section 5(i)). The standstill terminates immediately if TSL or TAI disposes of any asset outside the ordinary course of business without the prior written consent of Nordbank (as Administrative Agent). This is consistent with the negative covenant on asset sales (Section III.F below) but operates as an independent termination trigger.
Risk Assessment. Taken as a whole, the termination provisions are structured to give the lender group maximum flexibility to exit the forbearance at short notice. Several of the triggers are "hair-trigger" in nature, meaning they operate without cure periods, grace periods, or notice requirements. The absence of cure periods for information delivery failures (Section 5(d)) is particularly concerning, as the enhanced reporting requirements (discussed below) are extensive and time-sensitive, and even diligent compliance efforts may occasionally encounter delay.
The MAC clause (Section 5(f)) is the most concerning provision from TSL's perspective. The MAC standard is inherently subjective, and the Forbearance Agreement's MAC definition does not contain any of the customary carve-outs that are typically negotiated in acquisition agreements (and increasingly in forbearance agreements). Specifically, the definition does not exclude:
• Changes in general economic or market conditions;
• Changes in the shipping industry generally (including BDI declines or charter rate compression);
• Changes in applicable law or regulation; or
• Changes in accounting standards or principles.
The absence of these exclusions means that the continued decline of the BDI or a further reduction in fleet valuations — developments that are entirely outside TSL's control — could potentially be cited as a MAC justifying termination of the standstill. Given that the Drakos Maritime Valuations re-appraisal is expected imminently and is likely to show a significant decline from the January 2022 valuation of $891 million, this risk is not merely theoretical.
The cross-default trigger (Section 5(c)) creates a particularly dangerous dynamic in connection with the December 1, 2022 unsecured note interest payment. If that payment is missed and the 30-day cure period under the unsecured note indenture expires on January 1, 2023, the resulting unsecured note default could trigger a cross-default under the Credit Agreement, which in turn would trigger termination of the forbearance under Section 5(c) — leaving TSL with only seven days of effective standstill remaining (January 1 through January 8), or potentially none at all if the lenders act to terminate immediately upon the cross-default.
Recommendations for Extension Negotiations. In any extension negotiation, we recommend seeking the following modifications to the termination provisions:
(a) Cure periods. Add minimum cure periods of five (5) business days for information delivery failures under Section 5(d) and for technical breaches of the Forbearance Agreement under Section 5(a), provided the breach is capable of cure.
(b) Narrowed MAC definition. Modify the MAC definition to exclude shipping industry-wide market deterioration, including declines in the BDI, charter rate compression, and fleet value reductions that are attributable to market-wide conditions rather than company-specific events. This exclusion should be drafted to cover both realized declines and the reporting of such declines in updated appraisals or financial statements.
(c) Majority lender consent for subjective triggers. Require that termination based on subjective grounds (specifically, the MAC trigger under Section 5(f)) be approved by the Required Lenders (holders of more than 50% of commitments) rather than being exercisable by Nordbank as agent in its sole discretion.
(d) Cross-default carve-out. Amend the forbearance to provide that a cross-default arising from a missed interest payment on the unsecured notes shall not constitute a termination event under the forbearance, subject to TSL's good-faith engagement with the unsecured noteholder group regarding a comprehensive resolution.
E. Information and Reporting Covenants
Section 6 of the Forbearance Agreement imposes a significantly enhanced set of information delivery and reporting obligations on TSL and TAI during the standstill period. These obligations go well beyond the financial reporting requirements of the underlying Credit Agreement and are designed to provide the lender group and its advisors with real-time visibility into TSL's operations, financial condition, and restructuring progress. Each obligation is described and analyzed below.
1. 13-Week Cash Flow Forecasts (Section 6(a)). TSL is required to prepare and deliver weekly rolling 13-week cash flow forecasts to Nordbank (as Administrative Agent) and to the Ad Hoc Group (through WCB and Draycott Advisory Group LLC). The forecasts must be delivered by 5:00 p.m. Eastern Time each Friday and must cover the 13-week period commencing on the following Monday. Each forecast must include: (a) projected cash receipts by source (charter revenue, freight brokerage income, terminal revenue, other income); (b) projected cash disbursements by category (vessel operating expenses, crew costs, bunker fuel, port charges, debt service, professional fees, capital expenditures, other); (c) beginning and ending cash balances for each week; and (d) variance analysis showing actual results compared to the prior week's forecast for the elapsed period.
KHP (James Calloway) is currently in the process of developing the initial 13-week cash flow model and establishing the data feeds necessary for weekly updates. The first forecast was delivered on October 21, 2022, and weekly delivery has been maintained since. Coordination between KHP, TSL's finance team (Irini Dalakoura, CFO), and TAI's finance team (Diana Restrepo, VP Finance) will be essential to maintain timely and accurate production.
2. Monthly Financial Statements (Section 6(b)). TSL is required to deliver unaudited consolidated monthly financial statements, together with fleet operating reports and vessel-level profit and loss statements, within 20 calendar days following the end of each calendar month. The monthly financial package must include a consolidated balance sheet, income statement, and cash flow statement for the month, together with year-to-date results and comparison to the prior year period. Fleet operating reports must provide vessel-by-vessel detail on revenue, operating expenses, off-hire days, and utilization rates.
The 20-day deadline for monthly financials is aggressive given TSL's current staffing constraints in its finance department, the complexity of consolidating results across 14 vessel-owning SPVs and the TAI subsidiary, and the need for coordination with Grainger, Holt & Associates LLP (Malcolm Holt, Lead Engagement Partner), TSL's independent auditors. While GH&A is not involved in the preparation of monthly unaudited financials, certain reconciliation and close procedures conducted by GH&A in connection with the annual audit may create resource conflicts during the period.
3. Fleet Status Reports (Section 6(c)). TSL is required to deliver biweekly fleet status reports (on the 1st and 15th of each month, or the next business day) providing vessel-by-vessel detail on: (a) current employment status (time charter, voyage charter, spot market, idle); (b) current and contracted charter rates; (c) off-hire days and reasons therefor; (d) any vessel casualties, detentions, port state control deficiencies, or classification society findings; and (e) any pending or anticipated drydocking or maintenance requirements.
4. Material Event Notifications (Section 6(d)). TSL and TAI are required to provide prompt written notice to Nordbank and the Ad Hoc Group (within two (2) business days of occurrence or of TSL/TAI becoming aware) of any material event, including without limitation: (a) any regulatory action, investigation, or inquiry by any governmental or maritime authority; (b) the commencement of any litigation or arbitration involving TSL, TAI, or any material subsidiary; (c) any crew incident, serious injury, or fatality; (d) any environmental event, spill, or discharge; (e) any material customer or contract dispute; (f) any change in insurance coverage; and (g) any event that could reasonably be expected to have a Material Adverse Effect.
5. Access to Management (Section 6(e)). The Ad Hoc Group, acting through WCB and Draycott, has the right to schedule calls and meetings with TSL management (Georgios Andreadis, CEO; Irini Dalakoura, CFO) and TAI management (Marcus Hale, President; Diana Restrepo, VP Finance) on not less than 48 hours' prior written notice. TSL and TAI have agreed to make their senior management "reasonably available" for such calls and meetings. There is no limitation on the frequency of such calls, and the subject matter is unrestricted except that TSL and TAI are not required to disclose information protected by attorney-client privilege (though this carve-out is narrowly stated).
6. Access to Books and Records (Section 6(f)). The lender syndicate and its advisors (including WCB and Draycott) have the right, during normal business hours and upon reasonable prior notice, to inspect the books, records, accounts, and financial records of TSL at its headquarters at 42 Akti Miaouli, Piraeus 18538, Greece, and of TAI at its principal office at 1400 McKinney Street, Suite 2200, Houston, TX 77010. This right extends to the records of any material subsidiary.
Risk Analysis. The enhanced information and reporting covenants present both operational and strategic risks:
Operational Burden. The weekly 13-week cash flow requirement, while standard in distressed situations, is resource-intensive. Each weekly iteration requires gathering current data from vessel operating accounts, charter party counterparties, the Houston terminal, and various corporate bank accounts across multiple jurisdictions. TSL's finance team is already operating under significant strain, and the addition of biweekly fleet status reports and enhanced monthly financial packages will further tax limited personnel resources. Any delay or error in these deliverables — even an inadvertent one — could trigger a termination event under Section 5(d).
20-Day Monthly Financials Deadline. The 20-day deadline is aggressive by industry standards for a company of TSL's complexity. Prior to the forbearance, TSL's monthly close process typically took 30-35 days. Compressing this to 20 days will require process improvements and potentially additional temporary staffing support, both of which have cost implications that further pressure the constrained cash position.
Material Event Notifications — Breadth. The material event notification requirement is broadly drafted and could be triggered by routine operational matters. In a fleet of 50 vessels operating worldwide, crew incidents, minor port state control deficiencies, and operational disputes with charterers or port agents occur with regularity. The two-business-day notice requirement creates a compliance burden that will require the establishment of internal protocols to ensure that all potentially notifiable events are identified, evaluated, and reported promptly. We recommend establishing a dedicated reporting protocol with a designated point person at both TSL (suggested: Irini Dalakoura or a direct report) and TAI (suggested: Diana Restrepo) to triage and process notification obligations.
Strategic Disclosure Risks. The management access provisions create significant strategic risks. Conversations with the Ad Hoc Group's advisors (WCB and Draycott) during management calls could inadvertently reveal negotiating positions, privileged strategy discussions, or other sensitive information. While the Forbearance Agreement includes a carve-out for attorney-client privileged information, this carve-out is narrowly drafted and may not cover all categories of strategically sensitive information (such as management's internal assessment of enterprise value, the company's Chapter 11 contingency planning, or the Kostandinos family's willingness and capacity to contribute new equity). We recommend implementing protocols requiring (a) preparation of talking points in advance of each management call, reviewed and approved by C&H; (b) participation of C&H counsel (or designated associate) on each call to interpose privilege objections if necessary; and (c) a post-call debrief to assess what information was shared and whether any strategic exposure was created.
F. Negative Covenants During the Standstill
In addition to the enhanced information requirements, the Forbearance Agreement imposes a set of additional negative covenants that restrict TSL's and TAI's operational and financial flexibility during the standstill period. These covenants are set forth in Section 7 of the Forbearance Agreement and include the following:
1. No New Indebtedness (Section 7(a)). TSL and TAI shall not incur, assume, or permit to exist any indebtedness (as defined in the Credit Agreement) beyond that existing as of the execution date, except for ordinary-course trade credit and payables incurred in the ordinary course of business consistent with past practice.
2. No New Liens (Section 7(b)). TSL and TAI shall not create, incur, assume, or permit to exist any lien on any property or asset, except for permitted liens as defined in the Credit Agreement and liens existing as of the execution date.
3. No Asset Sales Outside the Ordinary Course (Section 7(c)). TSL and TAI shall not sell, transfer, lease, or otherwise dispose of any property or assets outside the ordinary course of business if such disposition would result in proceeds exceeding $1 million individually or $5 million in the aggregate, without the prior written consent of Nordbank (as Administrative Agent). This restriction is significant because asset sales — particularly vessel sales — could be an important component of any restructuring plan, and the consent requirement gives the lender group effective veto power over any such transaction during the standstill.
4. No Dividends or Distributions (Section 7(d)). TSL shall not declare or pay any dividend or make any distribution to its equity holders, including KFO Holdings SA and the Kostandinos family. This covenant is unsurprising given the financial distress and is consistent with the existing restricted payment covenants in the Credit Agreement, which are independently triggered during a period of default.
5. No Intercompany Transfers (Section 7(e)). Neither TSL nor TAI shall make any intercompany transfer, loan, advance, or payment exceeding $500,000 in any single transaction, or $2 million in the aggregate during the standstill period, without the prior written consent of Nordbank (as Administrative Agent). This restriction is relevant given the $76.4 million intercompany note from TAI to TSL and the ongoing operational fund flows between the two entities.
6. No Capital Expenditures Beyond Agreed Budget (Section 7(f)). TSL and TAI shall not make capital expenditures in excess of the amounts set forth in an agreed capital expenditure budget attached as an exhibit to the Forbearance Agreement. The agreed budget was developed in consultation with KHP and reflects essential maintenance capital expenditures (including scheduled drydockings and classification society requirements) but excludes any growth or expansion capital.
7. No Changes to Senior Management (Section 7(g)). TSL and TAI shall not terminate, replace, or make any material change to the roles or responsibilities of senior management — defined to include Georgios Andreadis (CEO of TSL), Irini Dalakoura (CFO of TSL), Marcus Hale (President of TAI), and Diana Restrepo (VP Finance of TAI) — without prior written notice to and consultation with the Ad Hoc Group.
Risk Analysis. The intercompany transfer restriction in Section 7(e) is potentially the most problematic of the negative covenants for day-to-day operations. TAI's Houston terminal operations and domestic freight brokerage business require regular intercompany funding from TSL to cover operational expenses, payroll, and vendor payments. The historical monthly intercompany funding flow from TSL to TAI has averaged approximately $3.5 million to $4.2 million per month, well in excess of the $500,000 per-transaction limit and the $2 million aggregate limit during the standstill period. While the Forbearance Agreement allows Nordbank to consent to transfers above these thresholds, the requirement of prior written consent introduces delay and uncertainty that could disrupt TAI's operations.
We recommend seeking, in any extension negotiation, an increase in the intercompany transfer consent threshold from $500,000 per transaction and $2 million aggregate to at least $2 million per transaction and $8 million aggregate, or alternatively, a carve-out for ordinary-course operational transfers consistent with historical patterns. Separately, TAI's VP Finance, Diana Restrepo, should be consulted immediately regarding near-term intercompany funding needs to ensure that the existing thresholds do not create operational disruption before any extension is negotiated.
The management change covenant in Section 7(g) is also noteworthy. While it does not give the Ad Hoc Group a veto right over management changes, the "notice and consultation" requirement effectively creates a soft veto, as any management change made over the objection of the Ad Hoc Group could be characterized as a breach of the consultation obligation and thereby trigger termination under Section 5(a). This could be relevant if operational circumstances require management changes during the standstill period.
G. Reservation of Rights and Acknowledgments
Sections 8 and 9 of the Forbearance Agreement contain standard but consequential reservation-of-rights and acknowledgment provisions.
Reservation of Rights (Section 8). The lender syndicate, Nordbank as Administrative Agent, and each individual lender expressly reserve all rights and remedies under the Credit Agreement, the ancillary security documents, and applicable law. The reservation provides that the forbearance shall not be deemed a waiver of any right or remedy, whether now existing or hereafter arising, and that upon the expiration or termination of the standstill period, the lenders may exercise any and all such rights and remedies as if the Forbearance Agreement had never been executed. This reservation ensures that the passage of the 90-day standstill period does not prejudice the lenders' enforcement position, and that any arguments regarding waiver by conduct, laches, or estoppel are foreclosed.
Acknowledgments by TSL and TAI (Section 9(a)). TSL and TAI acknowledge and confirm the following:
(i) the existence and continuance of the Specified Defaults;
(ii) that the Specified Defaults constitute Events of Default under the Credit Agreement;
(iii) the validity and enforceability of the Credit Agreement, the ancillary security documents, and all obligations thereunder;
(iv) the validity, priority, and enforceability of the first-priority security interests and liens securing the obligations under the Credit Agreement;
(v) the accuracy of the outstanding principal balances as set forth in the Forbearance Agreement; and
(vi) the waiver of any defenses, counterclaims, set-offs, or recoupments against the lenders or the Administrative Agent with respect to the Specified Defaults, the obligations under the Credit Agreement, or the validity of the security interests.
Release of Claims (Section 9(b)). TSL and TAI provide a broad, unconditional release of all claims, causes of action, demands, and liabilities against the lender syndicate, Nordbank as Administrative Agent and Collateral Agent, and their respective officers, directors, employees, agents, attorneys, and advisors (including WCB and Draycott), arising on or before the execution date of the Forbearance Agreement. The release covers all claims whether known or unknown, asserted or unasserted, and whether arising under contract, tort, statute, or otherwise.
Risk Assessment. The acknowledgment and release provisions are entirely one-sided. TSL and TAI receive no reciprocal release from the lender group. The default acknowledgment is particularly consequential because it could limit TSL's ability in future negotiations or litigation to contest the calculation methodology used to determine the covenant breaches, or to argue that the breaches were technical or curable in nature. By acknowledging the defaults as "Events of Default" (rather than merely "Defaults"), TSL has confirmed that the more severe category of contractual breach has occurred, triggering the full panoply of remedies under the Credit Agreement.
The release of claims is similarly one-sided and broad in scope. While the release is limited to claims arising on or before the execution date (October 10, 2022), it covers the entire period from the origination of the Credit Agreement through that date, encompassing any potential claims TSL might have regarding the lenders' conduct during the pre-forbearance negotiation period, including any claims related to the manner in which the lenders communicated or threatened enforcement action.
Recommendation. In any extension of the Forbearance Agreement, we recommend seeking the following modifications:
(a) Mutual release. Negotiate a reciprocal release covering claims arising during the forbearance and extension periods, so that TSL receives the same protection against post-closing lender claims as the lenders receive against borrower claims.
(b) Preservation of default interest disputes. Include an express reservation of TSL's right to contest the calculation of default interest, including the applicable SOFR benchmark, compounding methodology, and any alleged overpayments or miscalculations.
H. Fees and Expenses
Section 10 of the Forbearance Agreement requires TSL and TAI to pay the reasonable and documented professional fees and expenses of the following parties:
(a) Nordbank International AG, in its capacity as Administrative Agent and Collateral Agent, including reasonable internal costs and out-of-pocket expenses;
(b) Whitfield, Crane & Burgess LLP, as counsel to the Ad Hoc Group; and
(c) Draycott Advisory Group LLC, as financial advisor to the Ad Hoc Group.
This obligation is in addition to TSL's own advisory costs, which include the fees and expenses of:
(a) Calderwood & Harkness LLP (C&H), as restructuring counsel to TSL and TAI;
(b) Kensington Veltrian Partners LLC (KHP), as financial advisor to TSL and TAI; and
(c) Vassiliou & Demetriou Law Offic

MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

MATTER NO.: 1044-00003

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