Quality Distribution lowers minimum participation conditions in offers for 9% notes, floaters

By Angela McDaniels

Tacoma, Wash., Oct. 7 - Quality Distribution, Inc. said it lowered the minimum participation conditions for the retail tender offer and private exchange offers being held by subsidiaries Quality Distribution, LLC and QD Capital Corp.

The offers are now conditioned on at least 80% of the outstanding principal amount of the subsidiaries' 9% senior subordinated notes due 2010 being tendered in the offers on a combined basis instead of 90%, according to a company news release.

As previously reported, the subsidiaries began on Aug. 31 a retail tender offer for the $99,761,000 of 9% notes, a private exchange offer for the 9% notes and a private exchange offer for their $85 million of floating-rate senior notes due 2012, series A, and $50 million of floating-rate senior notes due 2012, series B.

On Sept. 25, the company said it was in talks with the holders about the terms of the offers and that it expected the discussions to continue.

The subsidiaries will spend up to $7.5 million of cash on the repurchase of 9% notes.

Holders of 9% notes participating in the retail tender offer and holders of 9% notes electing the cash option in the private exchange offer will be paid out of the same $7.5 million cash pool, and participants in the retail tender offer will be given priority over participants electing the cash option in the exchange offer.

For each $1,000 principal amount, the subsidiaries will pay $600 for 9% notes tendered in the retail tender offer by the early tender date and $500 for notes tendered after that time but before the offer expiration.

The early tender date for the retail tender offer was 5 p.m. ET on Sept. 11, and the offer will expire at midnight ET on Sept. 30, previously extended from Sept. 25.

The retail tender offer is conditioned on the consummation of both exchange offers. It is being made only to persons who are not eligible to participate in the exchange offers.

Exchange offers

In the private exchange offers, the subsidiaries are offering new 10% senior notes due 2013 in exchange for both series of floating-rate notes and new 11% senior subordinated pay-in-kind notes due 2013 or cash for the 9% notes.

The subsidiaries are also soliciting consents to proposed amendments that would eliminate or waive substantially all of the restrictive covenants, eliminate some events of default, modify covenants regarding mergers and consolidations and modify or eliminate some additional provisions.

Holders who tender into an exchange offer must deliver consents and vice versa.

For each $1,000 principal amount, holders of floating-rate notes will receive $1,000 principal amount of new 10% notes and $10 in cash for notes tendered by the consent date and $910 principal amount of new 10% notes for notes tendered after that time.

For each $1,000 principal amount of 9% notes tendered by the consent date, holders will receive either $1,000 principal amount of new 11% PIK notes or $600 in cash, subject to proration. Holders who tender after that time will receive either $900 principal amount of new notes or $500 in cash, subject to proration.

The consent date was 5 p.m. ET on Sept. 11, and the exchange offers will expire at midnight ET on Sept. 30, extended from Sept. 25.

Quality Distribution said the new 10% notes and 11% PIK notes will have substantially the same terms as the floating-rate notes and 9% notes, respectively, but will not be fungible with or exchangeable for those notes.

The new notes will be guaranteed by Quality Distribution and each of its material U.S. restricted subsidiaries, but they will not be guaranteed by the company's foreign subsidiaries or its unrestricted subsidiaries.

The coupon on the PIK notes will be payable 9% in cash and 2% in kind.

The exchange offer for the floating-rate notes is conditioned on at least 80% of the outstanding notes being tendered and the receipt of the needed consents for both series of floating-rate notes and the 9% notes.

The exchange offers are being made only to qualified institutional buyers and accredited investors and to certain non-U.S. investors located outside the United States.

As of 5 p.m. ET on Sept. 25, holders had tendered $84.4 million principal amount of the series A notes, $50.0 million principal amount of the series B notes and $39.0 million principal amount of the 9% notes.

Quality Distribution provides bulk transportation and related services and is based in Tampa, Fla.

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