PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
DRAFT — FOR DISCUSSION PURPOSES ONLY
RESTRUCTURING SUPPORT AGREEMENT
SUMMARY OF PROPOSED TERMS AND CONDITIONS
(INITIAL DRAFT)
February 3, 2023
Prepared by:
Calderwood & Harkness LLP 780 Third Avenue New York, NY 10017
Matter No.: 1044-00003
Prepared on behalf of:
Thalassa Shipping & Logistics Société Anonyme ("TSL") and Thalassa Americas Inc. ("TAI")
Contact Attorneys:
Nathaniel Bower, Responsible Partner Amy Chesterton, Lead Associate
This document is protected by the attorney-client privilege and constitutes attorney work product. It is being provided for discussion purposes only and does not constitute a binding agreement or commitment of any kind, except as expressly set forth in Sections 12, 13, 15, and 16 hereof. Distribution of this document is restricted to the named parties and their legal and financial advisors. Any unauthorized reproduction or distribution is strictly prohibited.
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Section 1: Recitals and Background
This term sheet (this "Term Sheet") sets forth the principal terms and conditions of a proposed Restructuring Support Agreement (the "RSA") to be negotiated and entered into among the following parties:
(a) Thalassa Shipping & Logistics Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic, with its registered office at 15 Akti Poseidonos, Piraeus 18531, Greece ("TSL");
(b) Thalassa Americas Inc., a C-Corporation organized under the laws of the State of Delaware, with its principal office at 1200 Smith Street, Suite 2400, Houston, Texas 77002 ("TAI" and, together with TSL, the "Company");
(c) the lenders under the Senior Secured Credit Facility (as defined in Section 2 below) (collectively, the "Senior Secured Lenders"), acting through the Administrative Agent and, where applicable, the Ad Hoc Group (each as defined below);
(d) Dralvecen Mezzanine Capital LLC, a Delaware limited liability company with its principal office at 600 Lexington Avenue, 23rd Floor, New York, NY 10022 ("BMC"); and
(e) KFO Holdings Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic, with its registered office at 42 Akti Miaouli, Piraeus 18538, Greece ("KFO"), the Company's majority equity holder.
Background and Liquidity Crisis. TSL and its subsidiaries, including TAI, operate a diversified global shipping and logistics enterprise comprising a fleet of 50 vessels (38 dry-bulk carriers and 12 container vessels), a major terminal facility in Houston, Texas, and a network of logistics, chartering, and freight-forwarding operations spanning Europe, North America, Asia, and the Middle East. The Company employs approximately 4,200 employees globally, of whom approximately 680 are based in the United States.
The global shipping industry experienced a severe and prolonged downturn during 2022, driven in substantial part by macroeconomic headwinds, reduced global trade volumes, geopolitical disruption, and a dramatic collapse in freight rates. The Baltic Dry Index—a widely followed benchmark for global dry-bulk shipping rates—declined approximately 58% between January 2022 and September 2022, reflecting an acute contraction in demand for dry-bulk shipping capacity. TSL's average daily time charter equivalent ("TCE") rate declined from $24,800 per day (FY2021 average) to $11,200 per day (Q3 2022 average), representing a decline of approximately 55%. The Company's consolidated revenue declined from €1.42 billion for the fiscal year ended December 31, 2021 ("FY2021") to an estimated €987 million for the fiscal year ended December 31, 2022 ("FY2022"), representing a decline of approximately 30.5%. TAI's revenue declined from $312 million (FY2021) to an estimated $198 million (FY2022), representing a decline of approximately 36.5%.
Covenant Breaches. As a direct result of the foregoing market deterioration and revenue decline, the Company breached multiple financial covenants under the Senior Secured Credit Facility:
(i) Minimum Liquidity Covenant: Breached as of September 15, 2022. The Company's unrestricted cash balance declined to $27.3 million, which was $12.7 million below the required minimum of $40 million.
(ii) Maximum Net Leverage Ratio: Breached as of the fiscal quarter ended September 30, 2022. The Company's net leverage ratio was 7.82x ($770.9 million net debt divided by $98.6 million last-twelve-months ("LTM") EBITDA), compared to the required maximum of 5.50x. The Company exceeded the permitted ratio by 2.32 turns.
(iii) Minimum Interest Coverage Ratio: Breached as of the fiscal quarter ended September 30, 2022. The Company's interest coverage ratio was 1.74x ($98.6 million LTM EBITDA divided by $56.7 million LTM interest expense), compared to the required minimum of 2.50x. The Company was 0.76 turns below the required ratio.
Forbearance Agreement. In response to the covenant breaches, the Company, the Administrative Agent, and the requisite Senior Secured Lenders entered into a Forbearance Agreement dated October 10, 2022 (the "Forbearance Agreement"), pursuant to which the Senior Secured Lenders agreed to a 90-day standstill on the exercise of remedies. The Forbearance Agreement was subsequently extended on January 8, 2023, with the standstill period now running through March 8, 2023. Further extensions of the Forbearance Agreement may be required in the event that the definitive RSA is not executed by that date, and the Company intends to seek such extensions in good faith.
Unsecured Notes Default. In addition to the covenant breaches under the Senior Secured Credit Facility, TSL failed to make the semi-annual interest payment of $2,062,500 due December 1, 2022 on the $50 million 8.25% Senior Unsecured Notes due March 1, 2025 (the "Unsecured Notes"). The 30-day cure period under the indenture expired on January 1, 2023, and an event of default under the Unsecured Notes indenture is currently outstanding.
Total Indebtedness. As of September 30, 2022, the Company's total consolidated indebtedness was approximately $847.3 million, comprising the following:
Fleet Valuation. A fleet appraisal conducted by Drakos Maritime Valuations Ltd. dated November 1, 2022 valued the Company's fleet of 50 vessels at an aggregate fair market value of $623 million, reflecting a decline of approximately 30.1% from the January 2022 appraisal value of $891 million.
Enterprise Value. Kensington Veltrian Partners LLC ("KHP"), the Company's financial advisor, has prepared an enterprise value analysis estimating the Company's total enterprise value in a range of $580 million to $640 million (midpoint of $610 million) as of November 2022.
Non-Binding Nature. This Term Sheet is non-binding and is provided for discussion purposes only, except as expressly set forth in Section 12 (Exclusivity and Standstill), Section 13 (Termination), Section 15 (Governing Law and Jurisdiction), and Section 16 (Miscellaneous), each of which shall be binding upon execution by the parties hereto.
Section 2: Definitions
The following defined terms shall have the meanings ascribed to them below, unless the context requires otherwise. Capitalized terms used but not defined in this Section 2 shall have the meanings ascribed to them elsewhere in this Term Sheet.
"Ad Hoc Group" means the informal group of Senior Secured Lenders comprising Nordbank International AG ($137 million in commitments/outstanding), Harborstone Bank plc ($95 million), Triton Credit Partners LP ($68 million), and Continental Maritime Lending GmbH ($72 million), collectively holding $372 million of commitments and outstanding amounts, representing approximately 54.3% of the $685 million Senior Secured Credit Facility. The Ad Hoc Group is represented by legal counsel Whitfield, Crane & Burgess LLP, 51 West 52nd Street, 38th Floor, New York, NY 10019 (Graham Whitfield III, lead partner), and by financial advisor Draycott Advisory Group LLC (Vanessa Chow, partner).
"Administrative Agent" means Nordbank International AG, Bahnhofstrasse 78, 8001 Zürich, Switzerland, in its capacity as administrative agent and collateral agent under the Senior Secured Credit Facility.
"BMC" means Dralvecen Mezzanine Capital LLC, a Delaware limited liability company, the sole holder of the Mezzanine Notes.
"BMC Equity" has the meaning set forth in Section 4.1.
"Closing Date" or "Effective Date" means the date on which all Conditions Precedent to the Restructuring Transactions set forth in Section 10 have been satisfied or waived in accordance with the terms of the definitive RSA. The Closing Date is targeted to occur no later than June 30, 2023 (the "Outside Date").
"Company" means TSL and TAI, collectively.
"Conditions Precedent" means the conditions precedent to the Closing Date as set forth in Section 10.
"Consenting Lenders" means, collectively, the Senior Secured Lenders, BMC, and any other creditor that executes a Joinder Agreement to the RSA.
"Consenting Parties" means, collectively, the Company, the Consenting Lenders, and KFO.
"Forbearance Agreement" means the Forbearance Agreement dated October 10, 2022, as extended on January 8, 2023 through March 8, 2023, among TSL, TAI, the Administrative Agent, and the Senior Secured Lenders party thereto, and as may be further extended from time to time.
"Intercompany Note" means the $76.4 million subordinated intercompany promissory note issued by TAI in favor of TSL, bearing interest at a current rate of 5.0% per annum, as described more fully in Section 9.
"Intercreditor Agreement" means the Intercreditor Agreement dated June 15, 2019 among Nordbank International AG (as first-lien agent), BMC (as second-lien holder), TSL, and TAI, as amended, supplemented, or otherwise modified from time to time, and as proposed to be amended and restated in connection with the Restructuring Transactions.
"KFO" means KFO Holdings Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic, with its registered office at 42 Akti Miaouli, Piraeus 18538, Greece. KFO is the majority equity holder of TSL, holding 80% of TSL's issued and outstanding equity, owned beneficially by Dimitrios Kostandinos (62%) and Elena Kostandinos-Pavlou (18%).
"KHP" means Kensington Veltrian Partners LLC, the Company's financial advisor.
"Mezzanine Notes" means the $112.3 million in mezzanine notes (second lien) issued by TSL and held by BMC. The Mezzanine Notes were issued with an original principal amount of $100 million, with $12.3 million in payment-in-kind ("PIK") interest having been capitalized through September 30, 2022. The Mezzanine Notes bear interest at a rate of 11.5% per annum on a PIK toggle basis, with all interest having been elected and accrued as PIK since Q2 2022. The Mezzanine Notes mature on December 15, 2024, and are secured by a second-priority lien on the same collateral securing the Senior Secured Credit Facility, subject to the terms of the Intercreditor Agreement.
"New Second-Lien Notes" has the meaning set forth in Section 4.1(a).
"Outside Date" means June 30, 2023.
"Restructuring Transactions" means, collectively, the transactions described in Sections 3 through 9 of this Term Sheet, including the amendment of the Senior Secured Credit Facility, the exchange of the Mezzanine Notes, the treatment of the Unsecured Notes, the KFO equity contribution, the vessel dispositions, the treatment of trade creditors, and the intercompany note restructuring.
"RSA" means the definitive Restructuring Support Agreement to be negotiated and executed among the Consenting Parties, incorporating the terms set forth in this Term Sheet.
"Senior Secured Credit Facility" means the $685 million senior secured credit facility established pursuant to the Credit Agreement dated June 15, 2019 (as amended, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among TSL (as borrower), TAI (as co-borrower for the U.S. Tranche), Nordbank International AG (as administrative agent and collateral agent), and the lender syndicate party thereto from time to time, comprising the following tranches:
(i) Term Loan A ("TLA"): $400 million original principal amount, amortizing in quarterly installments of $10 million per quarter. As of September 30, 2022, thirteen quarterly amortization payments had been made (aggregate amortization of $130 million), resulting in an outstanding principal balance of $270 million.
(ii) Revolving Credit Facility ("Revolver"): $200 million aggregate revolving credit commitment. As of September 30, 2022, $185 million was drawn and $15 million remained undrawn.
(iii) U.S. Tranche / Term Loan B ("TLB"): $85 million original principal amount, non-amortizing, bullet maturity. Outstanding as of September 30, 2022: $85 million.
Total Outstanding Amount (all tranches): $270 million + $185 million + $85 million = $540 million.
Current Maturity Date: June 15, 2024.
Interest Rate: Secured Overnight Financing Rate ("SOFR") plus 375 basis points. The default rate applicable since the covenant breach on September 15, 2022 is an additional 200 basis points (i.e., SOFR + 575 basis points).
Collateral: First-priority liens on 38 dry-bulk carriers, 12 container vessels, the Houston terminal lease (including all leasehold improvements), all accounts receivable of TSL and TAI, and the equity interests in TAI and 14 vessel-owning special purpose vehicles.
"Senior Secured Lender Syndicate" means the following lenders under the Senior Secured Credit Facility, with their respective outstanding commitments and exposures as of September 30, 2022:
"TAI" means Thalassa Americas Inc., a C-Corporation organized under the laws of the State of Delaware.
"TSL" means Thalassa Shipping & Logistics Société Anonyme, a société anonyme organized under the laws of the Hellenic Republic.
"Unsecured Notes" means the $50 million in aggregate principal amount of 8.25% Senior Unsecured Notes due March 1, 2025, issued by TSL. Interest is payable semi-annually in cash on June 1 and December 1 of each year. The indenture trustee is Garrison Trust Company, 100 Wall Street, 16th Floor, New York, NY 10005. The CUSIP number is 87265BAB5. As noted in Section 1, the semi-annual interest payment of $2,062,500 ($50 million × 8.25% ÷ 2) due December 1, 2022 was not made, and the 30-day cure period expired on January 1, 2023, resulting in an event of default under the indenture. The informal group of unsecured noteholders is represented by Ashford, Brightmoor Group & McKay PC, 299 Park Avenue, 18th Floor, New York, NY 10171 (Carolyn Brightmoor Group, lead partner).
Section 3: Amendment to Senior Secured Credit Facility
The Restructuring Transactions contemplate a comprehensive amendment (the "Amendment" or "Amendment No. 1") to the Credit Agreement governing the Senior Secured Credit Facility, as set forth below. The Amendment shall be documented in a form reasonably acceptable to the Company, the Administrative Agent, and Senior Secured Lenders holding not less than 66⅔% of outstanding commitments.
3.1 Maturity Extension
The maturity date of all tranches under the Senior Secured Credit Facility—including the TLA, the Revolver, and the TLB—shall be extended from June 15, 2024 to June 15, 2027, representing a three-year extension. The extension is intended to provide the Company with a materially longer runway to execute its operational recovery plan, benefit from an anticipated recovery in global freight rates, and complete the vessel disposition program described in Section 7 below. All other scheduled dates and deadlines under the Credit Agreement shall be adjusted as necessary to conform to the extended maturity.
3.2 TLA PIK Conversion
A portion of the outstanding TLA principal shall be converted from cash-pay to payment-in-kind to reduce the Company's near-term cash debt service burden. Specifically:
(a) $75 million of the $270 million outstanding TLA principal as of September 30, 2022 shall be designated as a "PIK Tranche." Interest on the PIK Tranche shall accrue at the applicable rate of SOFR plus 375 basis points and shall be capitalized (compounded) quarterly rather than paid in cash. No cash amortization payments shall be due on the PIK Tranche until maturity; provided, however, that net proceeds of vessel dispositions shall be applied first to the PIK Tranche as set forth in Section 7.2.
(b) The remaining $195 million of TLA principal shall continue as a "Cash-Pay Tranche" and shall continue to amortize on the existing quarterly amortization schedule, with quarterly cash payments of $10 million continuing as scheduled. The Cash-Pay Tranche shall otherwise remain on the same terms as the existing TLA, modified only by the maturity extension and covenant reset described herein.
The PIK conversion is designed to reduce the Company's quarterly cash debt service by approximately $10 million per year (reflecting the interest on the converted $75 million), thereby preserving liquidity for operational needs and working capital during the critical recovery period.
3.3 Revolver Reduction
The aggregate revolving credit commitment under the Revolver shall be permanently reduced from $200 million to $150 million. In connection with such reduction:
(a) TSL shall repay drawn amounts in excess of the reduced $150 million commitment. As of September 30, 2022, $185 million was drawn under the Revolver, resulting in an excess of $35 million. Such excess shall be repaid from the proceeds of the KFO equity contribution described in Section 6 and/or the proceeds of asset sales described in Section 7, in each case on or prior to the Closing Date.
(b) Following the reduction and repayment of excess draws, the Company shall have a $150 million revolving credit commitment, which may be drawn and repaid in the ordinary course subject to the terms of the amended Credit Agreement.
(c) All fees, commitment fees, and borrowing mechanics applicable to the Revolver shall remain in effect with respect to the reduced $150 million commitment, subject to such modifications as may be agreed in the definitive Amendment documentation.
3.4 Financial Covenant Reset
The financial maintenance covenants under the Credit Agreement shall be amended and reset as follows to reflect the Company's current financial condition and projected recovery trajectory:
Maximum Net Leverage Ratio:
The Maximum Net Leverage Ratio shall be reset as follows:
The initial covenant level of 7.00x acknowledges the Company's current leverage (7.82x as of September 30, 2022) and provides headroom for the Company to stabilize operations and begin its deleveraging program. The step-down schedule is calibrated to the Company's financial projections prepared by KHP and shared with the Ad Hoc Group's financial advisor, Draycott Advisory Group LLC, and contemplates that the Company will achieve meaningful EBITDA recovery and debt reduction through the vessel disposition program and organic revenue growth.
Minimum Liquidity Covenant:
The Minimum Liquidity Covenant shall be reduced from $40 million in unrestricted cash and cash equivalents to $30 million in unrestricted cash and cash equivalents, tested as of the last business day of each fiscal quarter. The reduction of $10 million reflects the Company's constrained cash position and the parties' agreement that a $30 million floor provides adequate liquidity for operations while reducing the risk of further technical covenant breaches during the recovery period.
Minimum Interest Coverage Ratio:
The Minimum Interest Coverage Ratio shall be amended as follows:
The full waiver through Q4 2023 reflects the parties' acknowledgment that the Company's EBITDA and interest expense profile during the immediate post-closing period will not support compliance with any interest coverage threshold. The staged reinstatement to 2.00x and ultimately to 2.50x is consistent with the Company's projected EBITDA recovery.
3.5 Amendment Fee
In consideration of the amendments described in this Section 3, the Company shall pay to the Senior Secured Lenders (pro rata in accordance with their outstanding commitments) an amendment fee equal to 1.00% of the aggregate outstanding principal under the Senior Secured Credit Facility as of the Closing Date ($540 million × 1.00% = $5,400,000). The amendment fee shall be payable in kind and shall be capitalized to the outstanding TLA principal on the Closing Date, thereby avoiding any incremental cash outlay by the Company.
3.6 Default Interest Waiver
All default interest that has accrued at the additional 200 basis points default rate since the first covenant breach on September 15, 2022 shall be retroactively waived in full. The waiver shall apply to all tranches of the Senior Secured Credit Facility (TLA, Revolver, and TLB). From and after the Closing Date, interest shall accrue at the standard non-default rate of SOFR plus 375 basis points, and the default rate provision shall remain in effect for future defaults but shall not apply retroactively to the period covered by the Forbearance Agreement and this waiver.
3.7 Other Terms
All other terms and conditions of the Credit Agreement and the related loan documents shall remain unchanged except as expressly modified by Amendment No. 1 and this Term Sheet. Without limiting the generality of the foregoing:
(a) The Administrative Agent and Collateral Agent shall remain Nordbank International AG.
(b) The CUSIP number for the TLA (87265BAA7) shall remain unchanged.
(c) All existing representations, warranties, covenants (other than the financial covenants as reset), events of default, and other provisions of the Credit Agreement shall continue in full force and effect.
(d) The collateral package securing the Senior Secured Credit Facility shall remain unchanged, subject to release of liens on any vessels sold pursuant to Section 7 and any adjustments required by the Amended and Restated Intercreditor Agreement.
Section 4: Mezzanine Notes Exchange
4.1 Exchange of Existing Mezzanine Notes
The existing Mezzanine Notes in the aggregate outstanding principal amount of $112.3 million (including $12.3 million of capitalized PIK interest), held in their entirety by BMC, shall be cancelled and exchanged on the Closing Date for the following consideration:
(a) New Second-Lien Notes: $60 million in aggregate principal amount of new second-lien secured notes (the "New Second-Lien Notes"), issued by TSL and documented under a new indenture and note purchase agreement, on the terms described in Section 4.2 below; and
(b) BMC Equity: 15% of the issued and outstanding equity of TSL (on a fully diluted basis) (the "BMC Equity"), to be issued to BMC on the Closing Date, subject to Greek corporate law requirements and the equity governance arrangements described in Section 4.3 below.
The exchange represents a haircut of approximately 46.6% on the debt component of BMC's recovery: ($112.3 million existing Mezzanine Notes minus $60 million New Second-Lien Notes) divided by $112.3 million equals approximately 46.6%. The 15% equity stake is intended to provide BMC with potential upside to compensate for the debt write-down, particularly in the event that the Company's enterprise value recovers toward or above pre-downturn levels.
Upon the cancellation of the existing Mezzanine Notes and the issuance of the New Second-Lien Notes and the BMC Equity on the Closing Date, BMC shall have no further claims against TSL, TAI, or any of their subsidiaries in respect of the Mezzanine Notes, and all obligations of the Company thereunder shall be deemed satisfied, released, and discharged in full.
4.2 Terms of New Second-Lien Notes
The New Second-Lien Notes shall have the following principal terms:
4.3 Equity Dilution
The issuance of the BMC Equity will result in the dilution of the existing equity holders of TSL as follows:
Pre-RSA Equity Ownership:
Post-RSA Equity Ownership (After Issuance of 15% to BMC):
Equity governance rights, registration rights, information rights, anti-dilution protections, tag-along and drag-along rights, preemptive rights, and other shareholder arrangements in respect of the BMC Equity shall be negotiated and documented in a shareholders' agreement or equivalent instrument as part of the definitive RSA documentation. It is expected that BMC will have the right to designate one observer to the TSL board of directors. The specific governance arrangements remain subject to further negotiation among the parties and their respective counsel.
KFO's post-RSA equity percentage shall be maintained at 68% through its pro rata contribution described in Section 6, subject to any further dilution resulting from the issuance of the BMC Equity and the mechanics of the equity subscription described therein.
4.4 Intercreditor Agreement
The existing Intercreditor Agreement dated June 15, 2019 between Nordbank International AG (as first-lien collateral agent) and BMC shall be amended and restated in its entirety (the "Amended and Restated Intercreditor Agreement") to reflect the New Second-Lien Notes structure. The Amended and Restated Intercreditor Agreement shall include, among other provisions:
(a) Updated turnover provisions reflecting the relative priorities of the Senior Secured Credit Facility (first lien) and the New Second-Lien Notes (second lien);
(b) A standstill period of not less than 180 days during which the holder of the New Second-Lien Notes may not exercise enforcement remedies against the collateral following an event of default, subject to customary exceptions;
(c) Consent and cooperation provisions regarding the release of collateral in connection with vessel dispositions pursuant to Section 7;
(d) Provisions governing the application of proceeds from enforcement actions, with first-lien claims being paid in full before any distribution to the second-lien holder; and
(e) Such other terms as are customary in first-lien/second-lien intercreditor agreements in the shipping finance market, as negotiated in good faith among the parties.
4.5 Lock-Up
BMC shall execute a lock-up agreement (the "BMC Lock-Up Agreement") simultaneously with the execution of the definitive RSA. Pursuant to the BMC Lock-Up Agreement, BMC shall agree not to transfer, sell, assign, or otherwise dispose of any of its Mezzanine Notes (or any claims or interests arising thereunder) during the period from the execution of the RSA through the earlier of (i) the Closing Date and (ii) the termination of the RSA in accordance with its terms. Following the Closing Date, the BMC Lock-Up Agreement shall restrict BMC from transferring or disposing of the New Second-Lien Notes or the BMC Equity for a period of six months after the Closing Date, unless such transfer is made to a BMC affiliate or with the prior written consent of the Company and the Administrative Agent.
Section 5: Treatment of Unsecured Notes
5.1 No Impairment
The $50 million in aggregate principal amount of 8.25% Senior Unsecured Notes due March 1, 2025 shall remain outstanding and unimpaired. No modification to the terms of the Unsecured Notes or the related indenture is proposed or required as part of the Restructuring Transactions. All economic terms of the Unsecured Notes—including the interest rate, maturity date, payment schedule, and covenants—shall continue in full force and effect as set forth in the existing indenture. The unimpaired treatment of the Unsecured Notes reflects the Consenting Parties' determination that (a) the relatively modest principal amount of $50 million does not warrant the transactional cost and delay that would be associated with negotiating a modification, (b) preserving the Company's relationship with the unsecured capital markets is in the long-term interests of all stakeholders, and (c) as set forth in the recovery analysis in Exhibit B, the unsecured noteholders receive a significantly superior outcome under the RSA (100% recovery) compared to a Chapter 11 scenario (estimated 8% to 14% recovery).
5.2 Cure of Missed Coupon
The semi-annual interest payment of $2,062,500 ($50 million × 8.25% ÷ 2) that was due on December 1, 2022 and was not made by TSL shall be paid in full in cash on the Closing Date. Upon the timely payment of such amount, the event of default arising from the missed payment (the 30-day cure period having expired on January 1, 2023 without payment) shall be deemed waived and cured in full, and no acceleration or other remedies shall be exercised by the indenture trustee or any noteholder in respect thereof.
In order to effectuate the cure and waiver, a consent and waiver letter (the "Consent and Waiver Letter") shall be obtained from Garrison Trust Company, as indenture trustee for the Unsecured Notes, and from the informal group of unsecured noteholders. The unsecured noteholder group is represented by Ashford, Brightmoor Group & McKay PC, 299 Park Avenue, 18th Floor, New York, NY 10171 (Carolyn Brightmoor Group, lead partner). The Company and its counsel, Calderwood & Harkness LLP, shall work with Ashford, Brightmoor Group & McKay PC and Garrison Trust Company to finalize the Consent and Waiver Letter in advance of the Closing Date. The payment of the missed coupon and the delivery of the Consent and Waiver Letter are each a condition precedent to Closing as set forth in Section 10.
Section 6: Equity Contribution by KFO Holdings
6.1 New Money Contribution
KFO Holdings SA shall contribute €35 million in new equity capital to TSL (approximately $38.2 million at the €1 = $1.0914 exchange rate as of the date hereof). The contribution shall be made in cash on or before the Closing Date by wire transfer of immediately available funds to an account designated by TSL. The equity contribution is an essential component of the Restructuring Transactions and is a condition precedent to Closing.
The KFO equity contribution reflects the Kostandinos family's commitment to the long-term viability of the Company and their willingness to contribute additional capital to support the restructuring. The contribution also demonstrates to the Senior Secured Lenders and BMC that the existing equity holders have meaningful "skin in the game" and are aligned with the interests of the creditor constituencies in maximizing the Company's value as a going concern.
6.2 Use of Proceeds
The proceeds of the KFO equity contribution shall be applied as follows:
(a) Liquidity: Funding the general liquidity needs of TSL and TAI, including working capital, operating expenses, and maintenance capital expenditures necessary to maintain the fleet and ongoing operations;
(b) Transaction Costs: Payment of professional fees and expenses incurred in connection with the Restructuring Transactions, including the fees and expenses of Calderwood & Harkness LLP (debtor's counsel), Kensington Veltrian Partners LLC (debtor's financial advisor), Vassiliou & Demetriou Law Offices (debtor's Greek counsel), and the fees and expenses of creditor advisors to the extent payable by the Company as set forth in Section 14;
(c) Revolver Repayment: Partial repayment of the Revolver excess draws, contributing toward the $35 million that must be repaid to reduce drawn amounts from $185 million to the revised $150 million commitment level; and
(d) Unsecured Note Cure Payment: Payment of the missed semi-annual interest payment of $2,062,500 on the Unsecured Notes as described in Section 5.2.
The Company shall prepare a detailed sources and uses schedule as part of the definitive RSA documentation, setting forth the allocation of the KFO equity contribution proceeds among the uses described above.
6.3 Form of Equity
The equity contribution shall be made by subscription for newly issued ordinary shares of TSL at a price per share to be determined in connection with the definitive documentation, subject to applicable Greek corporate law requirements and any required shareholder approvals. The subscription shall be structured to maintain KFO's post-RSA equity percentage at 68% (after giving effect to the 15% dilution resulting from the issuance of the BMC Equity). The specific mechanics of the equity issuance, including the number of shares to be issued, the subscription price, and the necessary corporate resolutions of TSL's board of directors and general assembly of shareholders, shall be documented and opined upon by Vassiliou & Demetriou Law Offices, the Company's Greek legal counsel.
Section 7: Asset Sales — Vessel Dispositions
7.1 Commitment to Sell
As part of the Restructuring Transactions, TSL shall commit to sell six (6) older dry-bulk carriers from its fleet within twelve (12) months of the Closing Date (the "Vessel Disposition Program"). The six vessels to be designated for sale shall be selected by the Company in consultation with the Administrative Agent and KHP, based on criteria including vessel age (with a target average age of 18 years for the sale candidates), maintenance and dry-docking requirements, charter market conditions, and expected sale proceeds. The estimated aggregate sale proceeds from the six vessel dispositions are approximately $72 million, based on the Drakos Maritime Valuations Ltd. appraisal dated November 1, 2022.
7.2 Application of Proceeds
Net sale proceeds from each vessel disposition (after deduction of transaction costs, brokerage commissions, and any outstanding vessel-specific obligations) shall be applied to prepay the outstanding TLA principal, with prepayments applied first to the PIK Tranche (to the extent outstanding) and then to the Cash-Pay Tranche. Upon prepayment, the corresponding TLA principal shall be permanently reduced. Upon any prepayment of TLA principal from vessel sale proceeds, the Administrative Agent shall release its first-priority lien on the applicable vessel and related collateral in accordance with the terms of the Credit Agreement.
7.3 Sale Process
Each vessel sale shall be conducted through a commercially reasonable process, which may include engagement of reputable shipbrokers, solicitation of offers from qualified buyers, and, where appropriate, competitive bidding procedures. The Administrative Agent (Nordbank International AG) shall have consent rights over any vessel sale at a price below an agreed minimum price floor for such vessel, which minimum price floor shall be established for each vessel in a Vessel Disposition Side Letter to be executed on or prior to the Closing Date. TSL shall not be obligated to accept any offer below the applicable minimum price floor without the Administrative Agent's prior written consent.
TSL shall provide quarterly written progress reports on the Vessel Disposition Program to the Administrative Agent and the Senior Secured Lenders, including a summary of marketing activities, offers received, sales completed, net proceeds applied, and remaining vessels to be sold. The first such report shall be due on the date that is 90 days after the Closing Date.
7.4 Fleet Composition Post-Dispositions
Following the completion of the Vessel Disposition Program (assuming all six vessel sales are completed), TSL's fleet will consist of 44 vessels, comprising 32 dry-bulk carriers and 12 container vessels. The remaining fleet is expected to have a younger age profile and lower aggregate maintenance and dry-docking costs, thereby improving the Company's operating cost structure. The Company and KHP believe that a 44-vessel fleet is of sufficient scale to maintain the Company's competitive position in its core markets while improving fleet efficiency and reducing capital expenditure requirements.
Section 8: Treatment of Trade Creditors
All trade creditors of TSL and TAI shall be paid in full in the ordinary course of business. As of September 30, 2022, total outstanding trade payables were approximately $38.7 million. No impairment, deferral, or modification of trade claims is proposed or contemplated as part of the Restructuring Transactions.
The Company's principal trade creditors include the following:
The continued ordinary-course payment of trade obligations is a critical component of the restructuring strategy. Failure to pay trade creditors in the ordinary course would (a) disrupt the Company's operations, particularly its ability to bunker, maintain, and repair vessels, (b) damage the Company's reputation and relationships with essential service providers, charterers, and counterparties, (c) potentially trigger mechanic's liens and other claims against the Company's vessels and assets, and (d) significantly increase the probability that a Chapter 11 filing (for TAI) or proceedings under Greek Law 4738/2020 (for TSL) would become necessary. Accordingly, unimpaired treatment of trade creditors is a foundational condition of the Restructuring Transactions.
Section 9: Intercompany Note Restructuring
9.1 Amendment of Intercompany Note
The $76.4 million subordinated intercompany promissory note issued by TAI in favor of TSL (the "Intercompany Note") shall be amended and restated in its entirety as follows:
9.2 Rationale
The amendment of the Intercompany Note is designed to preserve TAI's cash flow for operating needs and debt service on the Senior Secured Credit Facility, particularly the U.S. Tranche / TLB in the outstanding principal amount of $85 million. Reducing the interest rate from 5.0% to 2.0% per annum will reduce TAI's annual intercompany interest expense by approximately $2.3 million ($76.4 million × 3.0% reduction), freeing cash for operations and external debt service. Extending the maturity to December 2028 eliminates any near-term repayment obligation and aligns the Intercompany Note's maturity with the broader restructured debt maturity profile. The reaffirmation of full subordination ensures that the Intercompany Note remains structurally junior to all external creditors.
Section 10: Conditions Precedent to Closing
The consummation of the Restructuring Transactions and the occurrence of the Closing Date shall be subject to the satisfaction (or waiver by the applicable parties) of each of the following conditions precedent:
10.1 Documentation
(a) Execution and delivery of the definitive RSA by all Consenting Parties, in form and substance reasonably satisfactory to the Company, the Administrative Agent, the Ad Hoc Group, BMC, and KFO;
(b) Execution and delivery of Amendment No. 1 to the Credit Agreement governing the Senior Secured Credit Facility, in form and substance reasonably satisfactory to the Company, the Administrative Agent, and Senior Secured Lenders holding not less than 66⅔% of outstanding commitments;
(c) Execution and delivery of the Amended and Restated Intercreditor Agreement among Nordbank International AG (as first-lien collateral agent), BMC (as holder of the New Second-Lien Notes), TSL, and TAI;
(d) Execution and delivery of the New Second-Lien Note Purchase Agreement and the indenture governing the New Second-Lien Notes (the "New Second-Lien Notes Indenture"), among TSL, BMC, and Garrison Trust Company (or such other trustee as may be agreed);
(e) Execution and delivery of the Equity Subscription Agreement between TSL and KFO Holdings SA, documenting the terms of the €35 million equity contribution;
(f) Execution and delivery of the Amended and Restated Intercompany Promissory Note between TAI and TSL;
(g) Execution and delivery of Joinder Agreements by all consenting Senior Secured Lenders, evidencing their agreement to be bound by the terms of the definitive RSA;
(h) Execution and delivery of the BMC Lock-Up Agreement;
(i) Execution and delivery of the Vessel Disposition Side Letter, establishing the minimum price floors for each of the six vessels to be sold pursuant to the Vessel Disposition Program; and
(j) Receipt by the Company of the Consent and Waiver Letter from Garrison Trust Company (as indenture trustee for the Unsecured Notes), waiving the event of default arising from the missed December 1, 2022 interest payment, in form and substance reasonably satisfactory to the Company and the informal group of unsecured noteholders.
10.2 Approvals and Consents
(a) Approval of the definitive RSA and the Amendment by Senior Secured Lenders holding not less than 66⅔% of the aggregate outstanding commitments under the Senior Secured Credit Facility;
(b) All required corporate and shareholder approvals of TSL (including, as applicable, approval by the board of directors and the general assembly of shareholders of TSL in accordance with Greek corporate law), TAI (including approval by the board of directors of TAI in accordance with Delaware law), and KFO Holdings SA (including any approvals required under Greek corporate law for the equity contribution);
(c) Any required regulatory approvals or filings under the laws of the Hellenic Republic applicable to the Restructuring Transactions, including any filings with the Greek General Commercial Registry (GEMI) or other governmental authorities, to be confirmed by Vassiliou & Demetriou Law Offices, Athens; and
(d) No governmental or regulatory authority shall have issued any order, decree, or injunction that would prohibit or materially impair the consummation of the Restructuring Transactions.
10.3 Financial Conditions
(a) Receipt by TSL of the KFO equity contribution of €35 million (approximately $38.2 million) in cash, by wire transfer of immediately available funds to an account designated by TSL;
(b) Payment in full in cash of the missed semi-annual interest payment of $2,062,500 on the Unsecured Notes to Garrison Trust Company (as indenture trustee), for distribution to the holders of the Unsecured Notes in accordance with the indenture;
(c) No material adverse change shall have occurred in the business, operations, assets, liabilities, or financial condition of TSL or TAI between the date of execution of the definitive RSA and the Closing Date (a "Material Adverse Change"), it being understood that market-wide fluctuations in freight rates, the Baltic Dry Index, and vessel values shall not, in and of themselves, constitute a Material Adverse Change; and
(d) The Company shall have paid (or made arrangements to pay on the Closing Date) all fees and expenses of the advisors identified in Section 14 that are due and payable as of the Closing Date.
10.4 Deliverables
(a) Legal opinions from Calderwood & Harkness LLP addressed to the Administrative Agent, the Ad Hoc Group, and BMC, opining as to (i) the due authorization and enforceability of the Restructuring Transaction documents executed by TAI, and (ii) the absence of conflicts with, or violations of, TAI's certificate of incorporation, bylaws, and applicable Delaware law;
(b) Legal opinions from Vassiliou & Demetriou Law Offices addressed to the Administrative Agent, the Ad Hoc Group, and BMC, opining as to (i) the due authorization and enforceability of the Restructuring Transaction documents executed by TSL and KFO under the laws of the Hellenic Republic, and (ii) the compliance of the equity issuance and other Greek law matters with applicable Greek corporate law requirements;
(c) Secretary's certificate of TAI, attaching certified copies of TAI's certificate of incorporation, bylaws, and board resolutions authorizing the execution, delivery, and performance of the Restructuring Transaction documents;
(d) Officer's certificate of TAI, executed by Marcus Hale, President of TAI, certifying that (i) the representations and warranties of TAI in the definitive RSA are true and correct in all material respects as of the Closing Date, and (ii) no event of default or event that, with notice or lapse of time, would constitute an event of default has occurred and is continuing under the amended Credit Agreement (after giving effect to the Amendment);
(e) Solvency certificate of TAI, executed by Diana Restrepo, Vice President of Finance of TAI, certifying that, after giving effect to the Restructuring Transactions, TAI is solvent and able to pay its debts as they become due; and
(f) Bring-down of representations and warranties: Each Consenting Party shall certify that its representations and warranties set forth in the definitive RSA remain true and correct in all material respects as of the Closing Date.
10.5 No Filing Condition
No petition for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") shall have been filed by or against TAI, and no proceeding under Greek Law 4738/2020 (the Debt Settlement and Insolvency Code of the Hellenic Republic, as amended) shall have been commenced by or against TSL, in each case at any time during the period from the execution of the definitive RSA through the Closing Date. The filing of any such petition or commencement of any such proceeding shall constitute a termination event under the RSA as set forth in Section 13.
Section 11: Milestones and Timeline
The following milestones represent the targeted timeline for the negotiation, documentation, and consummation of the Restructuring Transactions. All dates are approximate except for the Outside Date, which is a firm deadline subject to extension only by mutual written agreement of the Consenting Parties.
Forbearance Agreement. The parties acknowledge that the current Forbearance Agreement standstill runs through March 8, 2023. In the event that the definitive RSA is not executed by March 8, 2023, a further extension of the Forbearance Agreement will be required to maintain the standstill on remedies during the period of ongoing negotiations. The Company intends to seek such an extension in good faith and with the cooperation of the Ad Hoc Group and the Administrative Agent.
Chapter 11 Contingency. In the event that the Restructuring Transactions are not consummated by the Outside Date of June 30, 2023, whether due to the failure to achieve any milestone, the termination of the RSA, or any other reason, the Company reserves the right to pursue a voluntary petition for relief under Chapter 11 of the Bankruptcy Code for TAI in the United States Bankruptcy Court for the Southern District of Texas (Houston Division), in accordance with the Chapter 11 contingency plan prepared by Calderwood & Harkness LLP. The Chapter 11 contingency plan contemplates a prearranged or prepackaged Chapter 11 case, with DIP financing on standby as described in Exhibit B. Nothing in this Term Sheet shall be construed as a commitment by the Company to file a Chapter 11 petition or as a waiver of any right or remedy of the Company or any other party.
Section 12: Exclusivity and Standstill