Correction: Quality Distribution tender offer, exchange offers expire Oct. 13

A story about Quality Distribution, Inc.'s tender offer and exchange offers that appeared in the Oct. 8 edition of Prospect News did not include major revisions made to the offer on Sept. 29. A corrected version follows:

By Angela McDaniels

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

The subsidiaries began on Aug. 31 a retail tender offer for their $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.

The tender offer and the exchange offer for the 9% notes are now conditioned on at least 80% of the outstanding principal amount of the 9% notes being tendered in the offers on a combined basis, according to a company news release. This condition was originally 90% and was later lowered to 85%.

The minimum participation condition for the floating-rate note exchange offer remains 80%.

On Sept. 25, the company said it was in talks with the holders about the terms of the offers. On Sept. 29, Quality Distribution announced new terms for the offers and said holders of approximately 82.4% of the 9% notes had tendered or agreed to tender their notes under the revised terms.

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 Oct. 13. The expiration was previously scheduled for Sept. 30 and, before that, 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 senior subordinated pay-in-kind notes due 2013 or cash for the 9% notes.

The new senior subordinated notes will carry a coupon of 11¾% - increased from 11% under the Sept. 29 revision - and 9% of this will be payable in cash, with the remainder payable in kind.

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 for notes tendered by the consent date and $900 principal amount of new 10% notes for notes tendered after that time.

For each $1,000 principal amount of 9% notes, holders will receive either a) $1,000 principal amount of new 11¾% PIK notes plus 21.71 warrants or b) $600 in cash, subject to proration. The exercise price of the warrants is $0.01 per share.

Holders of the floating-rate notes will receive accrued interest up to but excluding the settlement date.

Holders of 9% notes who elect the cash option will receive accrued interest up to the settlement date, but this payment will reduce the amount of the $7.5 million cash pool.

Holders of 9% notes who elect the note-only option will not receive any payment on the settlement date for accrued interest. Instead, on Nov. 15 - the next scheduled interest payment for the 9% notes - these holders will receive a special interest payment on their new notes in cash in the amount of accrued interest up to the settlement date with respect to an equivalent principal amount of 9% notes.

Prior to the changes made on Sept. 29, holders of floating-rate notes were slated to 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.

The payment of accrued interest has replaced the cash payments.

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

Because of the change, holders who previously tendered 9% notes and chose the cash option can change their election to the note-only option at any time prior to the offer expiration. Withdrawal rights, however, have expired and will not be reinstated.

The consent date was 5 p.m. ET on Sept. 11, and the exchange offers will expire at midnight ET on Oct. 13. The expiration was previously scheduled for Sept. 30 and, before that, Sept. 25.

Quality Distribution said the new 10% notes and 11¾% 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 exchange offers and the tender offer are each conditioned on the completion of the others. The exchange offer for the floating-rate notes is also conditioned on 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. 29, holders had tendered $84.5 million principal amount, or 99%, of the series A notes, $50.0 million principal amount, or 100%, of the series B notes and $39.0 million principal amount, or 39%, of the 9% notes.

The amount of tenders received are enough to make the proposed amendments.

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

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