PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT This memorandum has been prepared by Calderwood & Harkness LLP and constitutes privileged attorney-client communication and attorney work product. It is intended solely for the use of the addressee and other authorized representatives of the Firm in connection with the engagement described herein. Any unauthorized disclosure, copying, distribution, or use of this memorandum or any information contained herein is strictly prohibited. Receipt of this memorandum by any person not authorized to receive it does not constitute a waiver of any applicable privilege or protection.
CALDERWOOD & HARKNESS LLP 125 Broad Street New York, NY 10004
MEMORANDUM
TO: Robert Adeyemi, Responsible Partner, Capital Markets, Calderwood & Harkness LLP
FROM: Brendan Walsh, Lead Associate, Capital Markets; Natasha Forbes, Working Associate, Capital Markets
DATE: August 5, 2022
RE: Legal Due Diligence — Thalassa Shipping & Logistics SA — Proposed $400,000,000 Senior Secured Notes Due 2029
Matter No.: 1044-00004 Client No.: 80214-TSL
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY AND PURPOSE
1.1 Purpose of Memorandum
This memorandum sets forth the results of the comprehensive legal due diligence conducted by Calderwood & Harkness LLP ("C&H" or the "Firm") in its capacity as issuer's counsel to Thalassa Shipping & Logistics SA ("TSL" or the "Issuer") in connection with the proposed offering of $400,000,000 aggregate principal amount of Senior Secured Notes due 2029 (the "Notes"). The Notes are to be co-issued by TSL and Thalassa Finance Pte. Ltd. ("TFPL," and together with TSL, the "Co-Issuers"), a wholly-owned Singapore-incorporated special purpose vehicle established for purposes of facilitating the Notes issuance. The Notes will be guaranteed on a senior secured basis by certain subsidiaries of TSL (the "Guarantor Subsidiaries"), as further described herein, and on a limited basis by Kallistratos Maritime Holdings Ltd. ("KMH"), the controlling shareholder of TSL.
The Notes are to be offered to qualified institutional buyers in the United States pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and to non-U.S. persons outside the United States in reliance upon Regulation S under the Securities Act. The Notes will not be registered under the Securities Act or the securities laws of any state or other jurisdiction, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
The Notes will be governed by Singapore law and will be issued pursuant to an indenture (the "Indenture") to be entered into among the Co-Issuers, the Guarantor Subsidiaries, KMH (as limited guarantor), Marlowe Asset Management Trust Company of Singapore Pte. Ltd. ("VTC"), as trustee (the "Trustee"), and Atlas Collateral Agency Pte. Ltd. ("ACA"), as security agent (the "Security Agent"). The security package for the Notes will consist of, among other things, first-priority ship mortgages over 28 vessels in the TSL fleet (the "Collateral Vessels"), assignments of earnings and insurances in respect of the Collateral Vessels, assignments of intercompany loan receivables held by TFPL, and share pledges over the equity interests of the Guarantor Subsidiaries.
Anchor Bay Securities LLC ("ABS") has been engaged as lead bookrunner and initial purchaser for the offering, and Halcyon Partners International Ltd. ("HPI") has been engaged as co-manager. Wilson & Carruthers LLP ("W&C") serves as counsel to the initial purchaser. The net proceeds of the offering, together with cash on hand, will be used to refinance TSL's existing bilateral ship-finance facilities with Meridian Maritime Bank AG and Clearwater Shipping Finance Ltd. (as further described in Section IV), to pay transaction costs and expenses, and to fund general corporate purposes and working capital needs.
This memorandum is intended to assist the engagement team and, if appropriate, to be shared with the client, in identifying and evaluating the legal risks associated with the proposed transaction and in ensuring that the offering documents — including the offering memorandum (the "OM" or "Offering Memorandum"), the Indenture, and the security documents — accurately and completely reflect the legal and factual landscape of TSL and its group companies. This memorandum should be read in conjunction with the near-final Indenture (5th Draft, dated September 6, 2022), the near-final Offering Memorandum (4th Draft, dated September 12, 2022), and the Risk Factors Drafting Memorandum prepared separately by the C&H team.
1.2 Scope of Review
The due diligence investigation underlying this memorandum was conducted over the period from approximately July 15, 2022, through the date hereof, and comprised the following principal workstreams:
Management Presentation. A full-day management presentation and Q&A session was conducted in Piraeus, Greece, on July 25, 2022. The TSL management participants included Spyros Andreou (Chief Executive Officer), Marina Demetriou (Chief Financial Officer), Elena Kallistratos-Pavlou (Vice Chairwoman), and Alexandros Theodorakis (General Counsel). The C&H team was represented by Brendan Walsh and Natasha Forbes. In addition, Marcus Reinhardt and Priya Subramanian attended on behalf of ABS (initial purchaser), and Rebecca Samuels attended on behalf of W&C (initial purchaser's counsel). The management presentation covered, among other topics, TSL's history and strategy, fleet composition and utilization, chartering and commercial operations, financial performance and projections, regulatory and environmental compliance, corporate structure and governance, existing indebtedness and refinancing rationale, litigation and disputes, and tax structure. Follow-up questions from the C&H team were submitted in writing on July 28, 2022, and responses were received from TSL management between July 30 and August 3, 2022.
Virtual Data Room Review. TSL established a virtual data room (the "VDR") hosted by Sundial Technologies (Venue) containing corporate and organizational documents, material contracts, financial records and audited financial statements, fleet documentation (certificates of registry, classification certificates, safety management certificates, insurance policies), litigation files, regulatory filings, employment agreements, tax filings and opinions, and miscellaneous documents. The VDR index is attached as Appendix A. The C&H team conducted a systematic review of all documents uploaded to the VDR through the date of this memorandum. Supplemental documentary requests were submitted to TSL's General Counsel on an ongoing basis through August 2022, and responses have been incorporated into our analysis. Certain outstanding documentary requests remain pending as of the date hereof and are identified in Section XII.4.
Coordination with Local Counsel. C&H has coordinated with the following local counsel firms, each of which has been engaged by TSL to provide legal advice in connection with the offering:
• Delphi & Karidis LLP (Nikolaos Karidis, partner): Greek law matters, including TSL corporate status, Greek tonnage tax, Greek-flag vessel mortgage registration, Greek withholding tax, and Greek stamp duty.
• Rajendra & Osman LLP (Anil Rajendra, partner): Singapore law matters, including TFPL corporate status, Singapore governing-law analysis for the Indenture, Singapore withholding tax and Qualifying Debt Securities (QDS) qualification, TFS corporate status, and Singapore-flag vessel mortgage registration.
Local counsel opinions are in preparation and will be delivered at closing. Preliminary views from both firms have been incorporated into this memorandum where indicated.
Scope Limitations. The following matters are outside the scope of this legal due diligence memorandum and have been or are being addressed by other professional advisors to the Issuer:
• Financial Audit: The independent audit of TSL's consolidated financial statements for the fiscal years ended December 31, 2019, 2020, and 2021, and the review of the interim financial statements for the six months ended June 30, 2022, has been conducted by Kestrel & White Chartered Accountants (Georgios Papadimitriou, Audit Partner). C&H has reviewed the audit reports and the comfort letter request, but has not independently verified the financial information.
• Fleet Valuations: Independent appraisals of the 50-vessel fleet as of June 30, 2022, were conducted by Compass Marine Valuations Ltd. (Robert Hargreaves, Managing Director). C&H has reviewed the appraisal reports for the Collateral Vessels but has not independently assessed vessel values.
• Credit Ratings: Preliminary credit ratings have been assigned by Polaris Ratings Group Ltd. (Carl Johansson, lead analyst) and Oceanic Credit Assessments Inc. (Linda Park, lead analyst). C&H has reviewed the preliminary rating letters but has not participated in the rating process.
• Commercial and Market Due Diligence: C&H has not independently assessed market conditions, freight rate projections, or the commercial viability of TSL's business strategy.
1.3 Key Findings Summary
The following table provides a summary of the principal issues identified during the due diligence process, organized by assessed risk level. Each issue is discussed in detail in the applicable section of this memorandum and, where applicable, is addressed in the conditions to closing set forth in Section XII.
Overall Conclusion. Based on the due diligence investigation conducted through the date of this memorandum, C&H has not identified any legal impediment to the closing of the proposed offering, subject to the satisfaction of the specific conditions and resolution of the issues noted in Section XII. The corporate structure and governance of TSL and its subsidiaries are well-organized and consistent with industry standards for Greek-managed shipping groups. The fleet documentation is in good order, and regulatory compliance is satisfactory. The existing indebtedness is capable of being refinanced from the Notes proceeds, and the security package is capable of being implemented across the relevant flag-state jurisdictions, subject to coordination of timing. The tax structure, while multi-jurisdictional and inherently complex, does not present unexpected issues, provided that the Singapore QDS qualification is confirmed. Litigation exposure is immaterial relative to TSL's asset base and earnings.
II. CORPORATE STRUCTURE AND ORGANIZATIONAL DOCUMENTS
2.1 Thalassa Shipping & Logistics SA (the Issuer)
Entity Type and Governing Law. Thalassa Shipping & Logistics SA is a société anonyme (SA) organized and existing under the laws of the Hellenic Republic, principally governed by Greek Law 4548/2018 on the Reform of the Law of Sociétés Anonymes, as amended. TSL operates as the parent company and central management entity for a group of companies engaged in dry-bulk and container feeder shipping, port logistics, and freight forwarding operations.
Registered Office and Headquarters. TSL's registered office and principal place of business is located at 42 Akti Miaouli, Piraeus 185 35, Greece, a prominent commercial address in the heart of the Piraeus shipping district. TSL conducts its principal ship management and corporate functions from this location.
Commercial Registration. TSL is registered with the Greek General Commercial Registry (Geniko Emboriko Mitroo, or "GEMI") under registration number 148276201000. We have confirmed through GEMI records that TSL's registration is current and that all required periodic filings, including annual financial statements and minutes of general meetings, have been made on a timely basis. Tax compliance certificates obtained from the Greek tax authorities confirm that TSL is current in its tax obligations.
Date and Circumstances of Incorporation. TSL was incorporated in 1997 by the Kallistratos family, a Greek shipping family with multi-generational involvement in the maritime industry. The company was initially capitalized with a fleet of 4 handysize bulk carriers and has grown over the ensuing 25 years through a combination of organic expansion and selective acquisitions to its current 50-vessel fleet.
Articles of Association. We have reviewed the current consolidated text of TSL's Articles of Association (Katastatiko), as last amended by resolution of the general meeting of shareholders in 2021. The 2021 amendment related to an increase in TSL's authorized share capital to accommodate potential future equity issuances and the admission of additional ESOP participants. No amendment to the Articles of Association is required in connection with the proposed Notes offering. In particular, we note the following:
(a) The corporate purpose clause of the Articles of Association is broadly drafted to encompass the ownership and operation of vessels, shipping, logistics, freight forwarding, port services, and all ancillary activities, including the incurrence of indebtedness, the issuance of debt securities, the granting of security over the company's assets, and the provision of guarantees for subsidiaries and affiliated companies. The proposed Notes offering and guarantee obligations fall within the scope of TSL's corporate purpose.
(b) The Articles of Association do not impose any specific limitation on the aggregate amount of indebtedness that TSL may incur or the aggregate value of security that it may grant, beyond the general requirement that material transactions be approved by the Board of Directors.
(c) The authorized share capital of TSL is 10,000,000 shares of common stock with no par value. All issued and outstanding shares are fully paid.
(d) The Articles of Association provide for a Board of Directors of no fewer than five (5) and no more than nine (9) members, with the current board comprising seven (7) directors.
Corporate Purpose. As noted above, TSL's corporate purpose as defined in the Articles of Association is sufficiently broad to encompass the proposed Notes offering, the execution of the Indenture, the granting of the guarantee, and the provision of the security package. Delphi & Karidis LLP has confirmed this analysis under Greek law and has indicated that no specific shareholder or regulatory approval is required for the incurrence of debt by a Greek SA of this nature, provided that the Board of Directors has duly authorized the transaction.
Share Capital Structure. TSL's issued and outstanding share capital is held by three classes of shareholders as follows:
KMH is a BVI business company beneficially owned by Dimitrios Kallistratos, the Chairman of TSL. Pelagos Capital Partners Fund III LP is a Cayman Islands-domiciled private equity fund managed by Pelagos Capital Management Ltd., focused on transportation and maritime infrastructure investments. Pelagos Fund III acquired its 18.0% stake in TSL in 2018 as part of a growth capital investment. The TSL Management ESOP Trust holds shares on behalf of eligible members of TSL's senior management team, subject to vesting schedules as described in Section VIII.3 below.
Board of Directors. TSL's Board of Directors currently comprises seven (7) directors, as follows:
We have reviewed the minutes of the most recent annual general meeting and the most recent board meeting at which the composition of the Board was confirmed. All directors are currently serving within their respective terms of appointment. Board nomination rights are governed by the Shareholders' Agreement discussed in Section II.7 below.
Key Officers. In addition to the directors listed above, the following key officers of TSL are relevant to the transaction:
• Spyros Andreou — Chief Executive Officer. Mr. Andreou has served as CEO since 2015 and has over 20 years of experience in the shipping industry.
• Marina Demetriou — Chief Financial Officer. Ms. Demetriou joined TSL in 2012 and has been CFO since 2017. She also serves as the sole director of TFPL (the Co-Issuer).
• Alexandros Theodorakis — General Counsel and Company Secretary. Mr. Theodorakis has served as TSL's in-house General Counsel since 2014 and has been the principal management contact for this due diligence exercise.
Greek Law Compliance. Based on our review of the GEMI records, tax compliance certificates, and corporate filings made available in the VDR, and based on the confirmation of Delphi & Karidis LLP (Nikolaos Karidis, partner), TSL is in good standing under Greek company law. All annual filings with GEMI are current, including financial statements and minutes of general meetings. Greek corporate income tax returns have been filed for all relevant periods, and no outstanding tax assessments or disputes have been identified. Delphi & Karidis LLP will deliver a Greek law legal opinion at closing confirming, among other things, the due incorporation and valid existence of TSL, the corporate authority for the transaction, and the enforceability of the transaction documents under Greek law.
2.2 Thalassa Finance Pte. Ltd. (the Co-Issuer)
Entity Type and Governing Law. Thalassa Finance Pte. Ltd. is a Singapore private company limited by shares, incorporated under the Companies Act 1967 of Singapore (now the Companies Act 1967 as revised under Cap. 50). TFPL was established specifically as a co-issuer vehicle for the proposed Notes offering and has no independent business operations, no employees, and no assets other than the intercompany loan receivables described below.
Registered Office. TFPL's registered office is located at 8 Marina Boulevard, #36-02, Marina Bay Financial Centre Tower 1, Singapore 018981. This address is the registered office of TFPL's corporate secretary and resident agent.
Unique Entity Number (UEN). 202209345K.
Date of Incorporation. TFPL was incorporated in 2022 for the specific purpose of serving as co-issuer in the proposed Notes offering. The incorporation was part of the structuring of the financing to facilitate a Singapore-law governed issuance and to achieve favorable Singapore withholding tax treatment under the Qualifying Debt Securities regime.
Sole Director. Marina Demetriou, CFO of TSL, serves as the sole director of TFPL. Ms. Demetriou's appointment as sole director is consistent with TFPL's role as a special purpose vehicle and ensures alignment with TSL management.
Sole Shareholder. TSL holds 100% of the issued and outstanding share capital of TFPL, consisting of 100 ordinary shares of S$1.00 each, fully paid.
Purpose and Assets. TFPL's principal function is to hold intercompany loans extended to the fleet-owning subsidiaries of TSL. As of the date of this memorandum, TFPL holds intercompany loan receivables in an aggregate principal amount of $365,000,000, extended to TDBO, TCF, and certain single-vessel SPVs. These intercompany loan receivables represent TFPL's sole material assets and will constitute part of the security package for the Notes, as they will be assigned to ACA (as Security Agent) pursuant to the Assignment of Intercompany Loan Receivables to be executed at closing. The intercompany loans facilitate the flow of funds from the Notes offering to the operating level of the TSL group and ensure that the proceeds reach the fleet-owning subsidiaries that require financing for vessel acquisitions, refinancing, and working capital.
Constitution (Memorandum and Articles of Association). We have reviewed the constitution of TFPL as adopted upon incorporation. The constitution does not contain any restrictions on TFPL's ability to borrow, issue debt securities, grant security over its assets (including the intercompany loan receivables), or act as a co-issuer of the Notes. The objects clause is sufficiently broad to encompass all activities contemplated by the transaction.
ACRA Filings. Rajendra & Osman LLP has confirmed that TFPL's filings with the Accounting and Corporate Regulatory Authority of Singapore ("ACRA") are current and that TFPL is in good standing.
Note Regarding Special Purpose Vehicle Status. TFPL has no employees, no independent operations, and no assets other than the intercompany loan receivables and incidental cash balances. Its sole function is to act as co-issuer of the Notes and to channel funds through the intercompany loan structure. Accordingly, TFPL is a "shell" entity for purposes of the OM disclosure, and the OM will contain appropriate risk factor language regarding the limited assets and operations of the Co-Issuer. Noteholders should be aware that recourse to TFPL is limited to the intercompany loan receivables and that the creditworthiness of the Notes ultimately depends on the consolidated cash flows of the TSL group.
2.3 Kallistratos Maritime Holdings Ltd. (Controlling Shareholder / Limited Guarantor)
Entity Type. Kallistratos Maritime Holdings Ltd. ("KMH") is a BVI Business Company incorporated under the BVI Business Companies Act, 2004 (as amended).
Registered Office. KMH's registered office is located at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. KMH maintains no physical offices or employees and is a holding company vehicle.
Beneficial Owner. Dimitrios Kallistratos is the sole beneficial owner of KMH, holding 100% of its issued shares. Mr. Kallistratos is the founder of the Kallistratos family shipping business and serves as Chairman of TSL's Board of Directors.
Role in Transaction. KMH serves two functions in the transaction. First, as the holder of 72.5% of TSL's equity, KMH is the controlling shareholder of the Issuer. Second, KMH will provide a limited parent guarantee for the Notes, capped at $50,000,000 (the "Limited Parent Guarantee"). The Limited Parent Guarantee is intended to provide an additional layer of credit support for the Notes, reflecting the Kallistratos family's commitment to the TSL enterprise, while limiting the personal exposure of the controlling shareholder to a manageable quantum.
Memorandum and Articles of Association. We have reviewed KMH's Memorandum and Articles of Association. The M&A provide broad powers to the company and its directors, including the power to borrow, to guarantee the obligations of subsidiaries and affiliates, and to grant security. No restrictions on KMH's ability to provide the Limited Parent Guarantee have been identified. The M&A permit the guarantee without the need for shareholder approval (as Mr. Kallistratos, the sole shareholder, is also the sole director and will execute appropriate resolutions).
Certificate of Good Standing. A Certificate of Good Standing has been obtained from the BVI Registry of Corporate Affairs, dated July 29, 2022. The certificate confirms that KMH is in good standing and that all required annual fees have been paid. A confirmation from KMH's BVI registered agent is on file in the VDR.
BVI Economic Substance. KMH's activities are limited to holding shares in TSL and providing the Limited Parent Guarantee. Under the BVI Economic Substance (Companies and Limited Partnerships) Act, 2018, KMH is classified as conducting "holding company" activity, which attracts minimal substance requirements — namely, compliance with all applicable BVI filing requirements, which has been confirmed. The provision of the Limited Parent Guarantee does not alter KMH's classification, as the guarantee is ancillary to KMH's holding company function.
2.4 Pelagos Capital Partners Fund III LP (Minority Equity Sponsor)
Entity Type and Domicile. Pelagos Capital Partners Fund III LP ("Pelagos Fund III") is a Cayman Islands Exempted Limited Partnership registered under the Cayman Islands Exempted Limited Partnerships Act (as revised). Its general partner is Pelagos Capital Management Ltd., a Cayman Islands Exempted Limited Company. Andreas Vournas serves as the managing partner and principal investment professional.
Registered Office. PO Box 309, Ugland House, George Town, Grand Cayman, Cayman Islands.
Fund Profile. Pelagos Fund III has assets under management of approximately $1.4 billion and is focused on transportation and maritime infrastructure investments globally. The fund's investment in TSL, made in 2018, was a growth capital investment designed to support fleet expansion and operational scaling. Pelagos Fund III is a well-known participant in the maritime private equity space, and its involvement brings both financial resources and industry expertise to the TSL group.
Role in the Transaction. Pelagos Fund III holds an 18.0% equity interest in TSL and is entitled to nominate two (2) of the seven (7) directors on TSL's Board of Directors. As a minority equity sponsor, Pelagos Fund III has certain consent rights and governance protections under the Shareholders' Agreement (discussed in Section II.7 below), including a consent right over the incurrence of debt exceeding $300,000,000. Given that the Notes offering of $400,000,000 exceeds this threshold, Pelagos Fund III's prior written consent is a condition to the offering.
Pelagos Fund III will not be a party to the Indenture or the security documents. However, Pelagos Fund III has negotiated and obtained observer rights with respect to the Notes documentation, permitting it to review (but not approve or block) the terms of the Indenture. The observer rights are provided under the Shareholders' Agreement and are intended to allow Pelagos Fund III to monitor the impact of the Notes on TSL's capital structure and governance. No observer has been designated as of the date of this memorandum; we understand that Catherine Ng Wei Lin (Pelagos-nominated director) may serve in this capacity.
Consent for Debt Incurrence. The consent of Pelagos Fund III for the Notes offering is a critical closing condition. TSL's General Counsel (Alexandros Theodorakis) has indicated that preliminary discussions with Pelagos Fund III have been positive and that consent is expected to be forthcoming. C&H has prepared a draft consent letter for circulation to Pelagos Fund III and its counsel. The consent letter will confirm that Pelagos Fund III consents to: (a) the incurrence of debt under the Notes offering in an aggregate principal amount of $400,000,000; (b) the execution of the Indenture and related security documents; and (c) the use of Notes proceeds to refinance existing indebtedness and for general corporate purposes. Delivery of the executed consent letter is a condition to closing (see Section XII.2(1)).
Transfer Restrictions. The Shareholders' Agreement contains lock-up provisions restricting Pelagos Fund III from transferring its equity interest in TSL without the prior consent of KMH, subject to customary exceptions for transfers to affiliates. Tag-along and drag-along rights are also in place. These restrictions do not affect the Notes offering, which involves debt rather than equity.
2.5 Guarantor Subsidiaries
The Notes will be guaranteed on a senior secured basis by each of the following subsidiaries of TSL (collectively, the "Guarantor Subsidiaries"). Each Guarantor Subsidiary will execute the Indenture as a guarantor and will be a party to the relevant security documents (including ship mortgages and share pledges, as applicable). We have reviewed the organizational documents, corporate status, and authority to guarantee for each Guarantor Subsidiary, as summarized below.
2.5.1 Thalassa Dry Bulk Operations Ltd. ("TDBO")
Entity Type: Private Limited Company organized under the laws of the Republic of Malta, registered with the Malta Business Registry.
Role: TDBO is the fleet-owning subsidiary for 22 of TSL's 38 dry-bulk carriers. TDBO owns the vessels directly (as opposed to through single-vessel SPVs) and is the registered owner of record in the applicable flag-state registries. TDBO is the largest operating subsidiary in the TSL group and is the primary revenue-generating entity for the dry-bulk segment.
M&A Reviewed: We have reviewed the Memorandum and Articles of Association of TDBO. The M&A permit TDBO to guarantee the obligations of its parent company and affiliates and to grant security over its assets, including ship mortgages and assignments of earnings and insurances, without limitation. The directors of TDBO have the authority to approve the guarantee and security grant, subject to customary corporate benefit considerations under Maltese law.
Corporate Status: Good standing confirmed through a recent Malta Business Registry search. All annual filings are current, and there are no outstanding regulatory actions or compliance issues.
2.5.2 Thalassa Container Feeder Ltd. ("TCF")
Entity Type: Limited Liability Company organized under the laws of the Republic of the marshall Islands, registered with the marshall Islands Maritime and Corporate Administrators, Inc. ("MIMCA").
Role: TCF is the fleet-owning subsidiary for all 12 of TSL's container feeder vessels. TCF operates as the registered owner of these vessels and manages their commercial deployment in coordination with TSL's Piraeus-based management team.
M&A Reviewed: We have reviewed the Articles of Incorporation and Operating Agreement of TCF. The organizational documents permit upstream guarantees and the granting of security over TCF's assets, including ship mortgages, without restriction. The sole manager of TCF is TSL, which has the authority to cause TCF to enter into the guarantee and security arrangements.
Corporate Status: Good standing confirmed through a certificate from MIMCA. The marshall Islands registry records are current, and no adverse matters have been identified.
2.5.3 Thalassa Port Services FZCO ("TPS")
Entity Type: Free Zone Company organized under the rules and regulations of the Dubai Multi Commodities Centre Free Zone ("DMCC") in the Emirate of Dubai, United Arab Emirates.
Role: TPS conducts port logistics operations in the UAE, including container handling, warehousing, and related port services. TPS operates under a concession arrangement with a port terminal operator (discussed in Section III.4) and generates revenue from port logistics services provided to TSL's clients and third parties.
M&A Reviewed: We have reviewed TPS's charter and associated governance documents. Under DMCC Free Zone rules and TPS's constitutional documents, TPS is permitted to guarantee the obligations of its parent company and affiliates. No specific restriction on the provision of guarantees by UAE free zone entities has been identified, although we note that DMCC Free Zone authorities generally require notification of material corporate actions. TSL management has confirmed that appropriate notifications will be made.
Corporate Status: TPS holds a valid trade license issued by the DMCC Free Zone Authority, with the current license valid through 2031. TPS is active and in good standing with the DMCC.
2.5.4 Thalassa Freight Solutions Pte. Ltd. ("TFS")
Entity Type: Private Company Limited by Shares organized under the laws of the Republic of Singapore.
Role: TFS conducts freight forwarding operations in Southeast Asia, maintaining agency relationships and operational presence in Singapore and the broader ASEAN region. TFS is a service-oriented subsidiary with a relatively asset-light business model.
UEN and ACRA Status: TFS is registered with ACRA under a valid Unique Entity Number. Rajendra & Osman LLP has confirmed that TFS's ACRA filings are current, that TFS is in good standing, and that no adverse corporate or regulatory actions have been identified.
M&A Reviewed: The constitution of TFS permits the company to guarantee the obligations of its parent and affiliates and to grant security. No restrictions have been identified.
2.6 Organizational Chart
We have reviewed the full corporate organizational chart of the TSL group as maintained in the VDR. A clean copy of the organizational chart is attached as Appendix B. The organizational structure may be summarized as follows:
Apex. TSL (Greece) sits at the apex of the group structure as the parent company and central management entity. TSL is 72.5% owned by KMH (BVI), 18.0% owned by Pelagos Fund III (Cayman Islands), and 9.5% owned by the Management ESOP Trust.
Co-Issuer. TSL wholly owns TFPL (Singapore), the co-issuer vehicle. TFPL holds intercompany loan receivables in an aggregate amount of $365,000,000, extended to the fleet-owning subsidiaries.
Fleet-Owning Subsidiaries. The fleet-owning subsidiaries sit below TSL and TFPL in the organizational structure. The two principal fleet-owning subsidiaries are TDBO (Malta), which owns 22 dry-bulk carriers, and TCF (Marshall Islands), which owns 12 container feeder vessels. The remaining 16 vessels in the fleet are held by approximately 15 single-vessel special purpose vehicles ("SPVs"), each organized in the marshall Islands or Malta, which are wholly owned by TSL. These single-vessel SPVs are not parties to the transaction documents (i.e., they are not guarantors and their vessels are not Collateral Vessels, except where a specific SPV holds a Collateral Vessel and will grant a mortgage directly). The SPVs represent vessels that either do not meet the criteria for inclusion in the Collateral Vessel pool or are held separately for commercial or regulatory reasons.
Operating Subsidiaries. The operating subsidiaries — TPS (Dubai) and TFS (Singapore) — conduct the logistics and freight forwarding businesses of the TSL group. These entities generate revenue from service activities rather than vessel operations and have limited tangible assets.
Non-Guarantor Subsidiaries. In addition to the Guarantor Subsidiaries (TDBO, TCF, TPS, and TFS), the TSL group includes approximately 15 single-vessel SPVs and 3 administrative subsidiaries (including a Piraeus-based crewing services entity, a London representative office company, and a dormant Hong Kong entity) that are not parties to the transaction. Creditors of these non-guarantor subsidiaries (including trade creditors, maritime lien holders, and any future lenders) will have claims against the assets of those entities that rank structurally senior to the claims of the Noteholders. This structural subordination risk is a standard feature of multi-entity shipping group capital structures and will be disclosed as a risk factor in the OM.
Intercompany Loan Flows. The intercompany loan structure flows from TFPL (as lender) to the fleet-owning subsidiaries (as borrowers). The Notes proceeds will be received by the Co-Issuers (TSL and TFPL) and on-lent through the intercompany loan structure to the operating entities. The assignment of intercompany loan receivables to ACA as part of the security package provides the Noteholders with indirect security over the cash flows generated by the fleet-owning subsidiaries. The intercompany loans are denominated in U.S. dollars and bear interest at arm's-length rates consistent with transfer pricing documentation.
2.7 Shareholders' Agreements and Governance Documents
We have reviewed the Shareholders' Agreement dated September 14, 2018, among KMH, Pelagos Fund III, and the TSL Management ESOP Trust (the "Shareholders' Agreement"), as well as the Trust Deed governing the ESOP Trust dated December 5, 2019.
Board Composition. Under the Shareholders' Agreement, the Board of Directors of TSL comprises seven (7) directors, allocated as follows:
• KMH nominates four (4) directors, including the Chairman;
• Pelagos Fund III nominates two (2) directors; and
• Management (through the ESOP Trust) nominates one (1) director.
This board composition ensures that KMH retains effective control of TSL while providing Pelagos Fund III with meaningful board representation proportionate to its economic interest.
Consent Rights. The Shareholders' Agreement grants Pelagos Fund III consent rights over certain material transactions, commonly referred to as "reserved matters." The reserved matters include, among others:
(a) The incurrence of financial indebtedness (including the issuance of debt securities) in an aggregate principal amount exceeding $300,000,000;
(b) The sale, transfer, or disposal of any vessel or other material asset with an aggregate value exceeding $50,000,000;
(c) Any change to the Articles of Association that would adversely affect the rights of Pelagos Fund III;
(d) The declaration of dividends or other distributions to shareholders in excess of 50% of net income for any fiscal year; and
(e) The entry into any related-party transaction with an aggregate value exceeding $5,000,000.
The proposed Notes offering of $400,000,000 will trigger the consent right under clause (a) above. As noted in Section II.4, the consent of Pelagos Fund III must be obtained in writing prior to closing. TSL management has indicated that informal consent has been signaled, but the formal consent letter has not yet been executed.
Observer Rights. The Shareholders' Agreement provides Pelagos Fund III with observer rights in respect of the Notes documentation, meaning that Pelagos Fund III (or its designated representative) is entitled to receive copies of, and comment on, the draft Indenture and related transaction documents. The observer rights do not include a veto or blocking right over the terms of the Notes documentation. This distinction is important: Pelagos Fund III may express views on the terms of the Indenture, but its consent relates solely to the decision to incur the indebtedness, not to the specific terms thereof.
Tag-Along and Drag-Along Rights. The Shareholders' Agreement contains customary tag-along and drag-along rights, which apply in the event of a sale of a controlling interest in TSL. These provisions are not triggered by the Notes offering.
Anti-Takeover Provisions. The Shareholders' Agreement does not contain any poison pill, shareholder rights plan, or similar anti-takeover mechanism.
ESOP Trust. The ESOP Trust was established in 2019 to hold TSL shares for the benefit of eligible senior management employees. The Trust Deed provides for vesting over a four-year period, with accelerated vesting upon a change of control of TSL (defined to include a sale of more than 50% of TSL's equity). The Notes offering does not constitute a change of control under the ESOP Trust Deed, and accordingly, the offering will not trigger accelerated vesting. We have reviewed the vesting schedules and participant list; no impact on the transaction has been identified.
III. MATERIAL CONTRACTS
3.1 Charter Parties
TSL's fleet of 50 vessels is employed through a combination of time charters (both medium-term and short-term), voyage charters, and spot market fixtures. The chartering strategy reflects a balanced approach to revenue generation, with a core portfolio of medium-term time charters providing revenue stability and cash flow visibility, supplemented by shorter-term and spot market employment to capture market upside during favorable freight rate environments.
We have reviewed a summary schedule of all active charter parties for the 50-vessel fleet, as prepared by TSL's commercial department and provided in the VDR. The chartering profile as of the date of this memorandum is as follows:
The medium-term time charter portfolio provides a solid base of contracted revenue over the near to medium term. Charter counterparties include major commodity trading houses, industrial conglomerates, and regional shipping lines, all of which were reviewed in the VDR. We have conducted sanctions and restricted party screening on all charter counterparties and have not identified any counterparty that is a sanctioned or restricted party under OFAC, EU, or UK sanctions programs.
Change of Control Provisions. We have identified change of control provisions in seven (7) of the active charter parties. These provisions generally define a "change of control" as a change in the majority ownership or effective control of the vessel-owning entity or its ultimate parent. Our analysis, confirmed by Alexandros Theodorakis (General Counsel), is that the proposed Notes offering — which involves the incurrence of debt, not the transfer of equity — should not constitute a "change of control" under any of the reviewed charter parties. The controlling shareholder (KMH / Dimitrios Kallistratos) will retain its 72.5% equity interest in TSL, and there will be no change in the management or operational control of the fleet. Nonetheless, this issue should be monitored, and if any charter counterparty were to assert that the offering constitutes a change of control, TSL would need to seek a waiver or potentially face charter termination for the affected vessels. We consider this risk to be low.
Assignment Provisions. Most of the reviewed charter parties permit assignment of the charter by the vessel owner with the prior consent of the charterer, which consent is not to be unreasonably withheld. Assignment of charter earnings is relevant to the security package, as the Deed of Assignment of Earnings and Insurances will assign to ACA (as Security Agent) the earnings generated by the Collateral Vessels, including time charter hire payments. For Collateral Vessels on time charter, notices of assignment will need to be sent to the relevant charterers at or around the time of closing, informing them of the assignment and directing future payments to an account controlled by the Security Agent (or in accordance with the account mechanics under the Indenture).
Revenue Concentration. We have reviewed the concentration of revenue among TSL's charter counterparties. The top five (5) charterers by revenue account for approximately 38% of annualized revenue, with no single charterer accounting for more than 12% of total revenue. This level of concentration is within normal parameters for a diversified shipping company and does not present an undue concentration risk. The OM will include appropriate disclosure regarding counterparty credit risk.
3.2 Shipbuilding and Newbuilding Contracts
TSL currently has two (2) newbuilding contracts outstanding for the construction of Ultramax dry-bulk carriers at a major Asian shipyard. The key terms of the newbuilding contracts are as follows:
• Hull No. 3245: Expected delivery Q3 2023. Original contract price: $32,000,000. Installments paid to date: approximately $19,000,000. Remaining installment payments: approximately $13,000,000.
• Hull No. 3246: Expected delivery Q1 2024. Original contract price: $33,000,000. Installments paid to date: approximately $4,000,000. Remaining installment payments: approximately $29,000,000.
The aggregate remaining installment payments across both newbuilding contracts total approximately $42,000,000. These payments will be funded from TSL's operating cash flows and, if necessary, from the general corporate purposes allocation of the Notes proceeds.
We have reviewed both newbuilding contracts for assignment restrictions, default provisions, refund guarantee arrangements, and financing terms. The contracts contain standard assignment restrictions requiring the builder's consent for any transfer of the contractual rights, which is not contemplated as part of the Notes offering. Default provisions include customary buyer default and builder default triggers. Builder's refund guarantees have been issued by reputable financial institutions, ensuring that installment payments are refundable in the event of builder default or failure to deliver.
Importantly, the two newbuilding vessels are not included in the Collateral Vessel pool. The 28 Collateral Vessels consist exclusively of existing, in-service vessels. Upon delivery, the newbuilding vessels may be added to the Collateral Vessel pool under the provisions of the Indenture permitting the addition of vessels (subject to appraisal and other conditions), but this is not a requirement and has not been committed to.
3.3 Ship Management Agreements
All 50 vessels in the TSL fleet are technically managed in-house by TSL's Piraeus-based ship management division, which employs approximately 75 of TSL's 120 Piraeus-based shore staff. Technical management functions include vessel maintenance and repair, class survey coordination, safety management (ISM Code compliance), crewing, provisioning, and dry-docking supervision. The in-house management model is common among established Greek shipping companies and provides TSL with direct control over operational quality and cost management.
Two (2) vessels in the fleet are commercially managed by a third-party commercial manager under a brokerage agreement, which provides for the third-party manager to arrange voyage charters and spot fixtures for those vessels. We have reviewed the brokerage agreement for termination and assignment provisions. The agreement is terminable by either party on 90 days' written notice without penalty, and the agreement does not restrict TSL's ability to grant security over the vessels or to assign charter earnings.
Insurance for the entire fleet is arranged centrally through TSL's insurance brokers, as discussed in greater detail in Section IX below.
3.4 Agency and Freight Forwarding Contracts
Thalassa Freight Solutions Pte. Ltd. (TFS — Singapore). TFS maintains approximately 22 freight forwarding agency agreements with agents across Southeast Asia, including in Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the Philippines. These agreements are typically short-term (renewable annually) and provide for TFS to act as the freight forwarding agent or for the local agent to act on behalf of TSL's clients. We have reviewed a representative sample of these agreements and have not identified any provisions that would restrict or adversely affect the Notes offering. No material exclusivity arrangements are in place.
Thalassa Port Services FZCO (TPS — Dubai). TPS operates under a concession arrangement with a port terminal operator in the UAE for the provision of port logistics services, including container handling, warehousing, and distribution. We have reviewed the concession agreement, which has a term expiring in 2031. The concession agreement does not contain a change of control trigger (a change of control is defined as a transfer of more than 50% of TPS's equity, which is not contemplated in this transaction). The concession agreement permits TPS to guarantee the obligations of its parent company, provided that such guarantee does not impair TPS's ability to perform its concession obligations. Given the limited nature of TPS's guarantee (as a downstream guarantor, not a direct obligor), we do not anticipate any conflict with the concession terms.
3.5 Fuel Supply / Bunkering Contracts
TSL maintains framework bunkering agreements with two major fuel suppliers, providing for the supply of marine fuel oil (VLSFO — very low sulphur fuel oil) and marine gasoil at agreed pricing formulae across TSL's principal trading routes. We have reviewed both framework agreements for volume commitments, pricing mechanisms, credit terms, and cross-default provisions. The agreements provide for minimum annual volume commitments, which TSL has historically met and expects to continue meeting based on current fleet utilization. Pricing is based on published benchmark indices plus a fixed premium, which is consistent with market terms. Cross-default provisions are limited to defaults under the specific bunkering agreement and do not cross-default to TSL's financial indebtedness. No off-market terms or unusual provisions have been identified.
3.6 Other Material Contracts
In addition to the foregoing, we have reviewed at a summary level the following categories of contracts maintained by TSL and its subsidiaries:
• IT Systems Contracts: Agreements for fleet management software, ERP systems, and communications infrastructure. These are standard commercial contracts with no impact on the transaction.
• Class Society Agreements: Agreements with the two major classification societies that class TSL's fleet. These agreements govern the classification and survey requirements for each vessel and are essential to the maintenance of class, which is in turn a requirement under the Indenture. No adverse terms have been identified.
• Crewing Agency Agreements: Agreements with crewing agencies in the Philippines, India, Greece, and Ukraine for the supply of seafarers. These are discussed further in Section VIII.2.
• Salvage and Towage Contracts: TSL does not maintain standing salvage or towage contracts; such services are engaged on an ad hoc basis as needed.
No contracts have been identified in any category that would prohibit or materially restrict the Notes offering, the execution of the Indenture or related documents, or the granting of the security package.
IV. EXISTING INDEBTEDNESS
4.1 Overview of Existing Debt
As of the date of this memorandum, TSL's total existing funded indebtedness (excluding intercompany obligations) is approximately $310,000,000, consisting of two bilateral secured ship-finance term loan facilities as detailed below. Both facilities are traditional shipping bank facilities, secured by first-priority ship mortgages and assignments of earnings and insurances over designated vessels. Both facilities will be fully refinanced and repaid in their entirety from the net proceeds of the Notes offering at or immediately following closing, and the existing ship mortgages and security assignments will be released upon repayment.
TSL does not currently have in place a revolving credit facility, working capital facility, or any other committed or uncommitted credit facility. TSL operates from its existing cash balances, which totaled approximately $58,300,000 as of June 30, 2022 (per interim financial statements reviewed by Kestrel & White). Management has indicated that TSL intends to establish a post-closing revolving credit facility of up to $50,000,000 for working capital purposes; however, the terms of any such facility have not been finalized, and the Indenture will contain limitations on the incurrence of additional debt (including carve-outs for working capital facilities within specified parameters).
A detailed schedule of existing indebtedness is attached as Appendix F.
4.2 Meridian Maritime Bank AG Facility
Lender. Meridian Maritime Bank AG, Talstrasse 18, 8001 Zürich, Switzerland. The primary relationship contact at Meridian is Hans-Peter Gerber, Senior Director, Shipping Finance Division.
Facility Type. Bilateral secured ship-finance term loan facility, entered into in 2020.
Original Amount. $220,000,000.
Outstanding Balance (as of July 31, 2022). Approximately $190,000,000. The facility has been amortizing through scheduled semi-annual installments since its inception.
Maturity Date. 2025 (specific maturity date reviewed in the facility agreement).
Interest Rate. SOFR (Secured Overnight Financing Rate) plus a margin of 275 basis points per annum, payable semi-annually in arrears. The facility was originally based on LIBOR and was converted to SOFR in early 2022 pursuant to the facility's benchmark replacement provisions.
Security Package. The Meridian facility is secured by:
(a) First-priority ship mortgages over 16 dry-bulk vessels owned by TDBO;
(b) Assignment of earnings on the 16 mortgaged vessels (charter hire, freight, and demurrage);
(c) Assignment of insurances on the 16 mortgaged vessels (hull and machinery, war risk, P&I);
(d) Share pledge over 100% of the shares of TDBO; and
(e) Corporate guarantee from TSL (parent guarantee).
Upon full repayment of the Meridian facility from Notes proceeds, Meridian is contractually obligated to release all of the foregoing security within 10 business days. The ship mortgages will be discharged from the applicable flag-state registries, and new first-priority mortgages in favor of ACA (as Security Agent for the Noteholders) will be registered in their place. C&H has prepared a draft payoff letter request to Meridian, which includes a request for the form of payoff letter, discharge instructions, wire transfer details, and confirmation of the release mechanics. This payoff letter request is a companion document to this memorandum.
Financial Covenants. The Meridian facility contains the following financial covenants, tested semi-annually:
(i) Minimum Collateral Coverage Ratio: The aggregate fair market value of the 16 mortgaged vessels must equal or exceed 125% (1.25x) of the outstanding loan balance. As of June 30, 2022, the collateral coverage ratio was approximately 2.8x, based on the fleet valuations conducted by Compass Marine Valuations Ltd. TSL is in compliance with this covenant with substantial headroom.
(ii) Minimum Cash Balance: TSL must maintain a minimum consolidated cash balance of $15,000,000. TSL's consolidated cash balance as of June 30, 2022, was $58,300,000. TSL is in compliance.
(iii) Maximum Leverage Ratio: Total funded debt to EBITDA must not exceed 4.0x. Based on LTM EBITDA of approximately $214,600,000 and total funded debt of $310,000,000, the leverage ratio is approximately 1.4x. TSL is in compliance with substantial headroom. Following the Notes offering ($400,000,000 of new debt less $310,000,000 of refinanced debt), the pro forma leverage ratio would be approximately 1.9x, still well within the 4.0x threshold.
Compliance Status. TSL is currently in full compliance with all covenants under the Meridian facility. No events of default or potential events of default have occurred or are continuing.
Prepayment Provisions. The Meridian facility is prepayable at par upon 30 days' prior written notice, without any make-whole premium, yield maintenance, or other prepayment penalty. This is a favorable provision that facilitates the contemplated refinancing from Notes proceeds.
Consent/Waiver Requirements. The Meridian facility agreement contains a negative covenant restricting TSL from incurring additional financial indebtedness (including the issuance of debt securities) in an aggregate principal amount exceeding $50,000,000 without the prior written consent of Meridian. The proposed Notes offering of $400,000,000 significantly exceeds this threshold, and accordingly, Meridian's consent or waiver is required. As a practical matter, the Meridian facility will be fully repaid from Notes proceeds at closing, which will extinguish the covenant. However, there is a "gap period" between the launching of the Notes offering (when the Notes are marketed and priced) and the closing (when the Notes proceeds are received and used to repay Meridian). During this gap period, the offering will have been announced and commitments made, but the Meridian facility will still be outstanding. To cover this gap period and to permit the offering to proceed without a technical covenant breach, a consent or waiver letter from Meridian is required. C&H has initiated discussions with Meridian regarding the form and timing of the consent/waiver letter. Delivery of the executed consent/waiver letter is a condition to closing (see Section XII.2(2)).
Cross-Default Provisions. The Meridian facility contains a cross-default provision triggered by a default under any other financial indebtedness of TSL or its subsidiaries in an aggregate amount exceeding $10,000,000. This provision is standard for ship-finance facilities and will be discharged upon repayment of the Meridian facility.
4.3 Clearwater Shipping Finance Ltd. Facility
Lender. Clearwater Shipping Finance Ltd., 1 Fleet Place, London EC4M 7RA, United Kingdom. The primary relationship contact is Emma Blackwood, Director, Structured Ship Finance.
Facility Type. Bilateral secured ship-finance term loan facility, entered into in 2019.
Original Amount. $150,000,000.
Outstanding Balance (as of July 31, 2022). Approximately $120,000,000.
Maturity Date. 2026.
Interest Rate. SOFR plus a margin of 300 basis points per annum, payable quarterly in arrears. As with the Meridian facility, the benchmark was converted from LIBOR to SOFR in early 2022.
Security Package. The Clearwater facility is secured by:
(a) First-priority ship mortgages over 8 dry-bulk vessels (owned by TDBO) and 4 container feeder vessels (owned by TCF), for a total of 12 mortgaged vessels;
(b) Assignment of earnings on the 12 mortgaged vessels;
(c) Assignment of insurances on the 12 mortgaged vessels;
(d) Share pledge over 100% of the shares of TCF; and
(e) Corporate guarantee from TSL.
As with the Meridian facility, all security will be released upon full repayment from Notes proceeds, and the ship mortgages will be replaced with new first-priority mortgages in favor of ACA.