Quality Distribution subsidiaries get tenders for $218.2 million 9% notes, floaters in offers

By Angela McDaniels

Tacoma, Wash., Oct. 14 - Quality Distribution, Inc. subsidiaries Quality Distribution, LLC and QD Capital Corp. received tenders for $218.2 million principal amount of notes in their exchange offers and tender offer, according to a company news release.

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. Each offer expired at midnight ET on Oct. 13.

Holders tendered approximately:

• $100,000 principal amount of 9% notes into the retail tender offer;

• $83.6 million principal amount, or 83.8%, of the 9% notes into the exchange offer, of which approximately $2.9 million were held by holders that elected the cash option;

• Approximately $84.5 million principal amount, or 99.4%, of the series A notes; and

• Approximately $50 million principal, or 100%, of the series B notes.

Payment

For each $1,000 principal amount of 9% notes tendered in the retail tender offer, the subsidiaries will pay $600 for notes received by the early tender date and $500 for notes received 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.

In the private exchange offers, the subsidiaries are issuing new 10% senior notes due 2013 in exchange for both series of floating-rate notes and new 11¾% senior subordinated pay-in-kind notes due 2013 or cash for the 9% notes. Of the 11¾% coupon, 9% is payable in cash and the remainder is payable in kind.

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. If the amount of tenders received would have resulted in more than $7.5 million being spent, participants in the retail tender offer would have been given priority over participants electing the cash option in the exchange offer.

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. 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 elected the cash option will receive accrued interest up to the settlement date, and this payment is being made out of the $7.5 million cash pool.

Holders of 9% notes who elected 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.

In total, the subsidiaries expect to issue about $134.5 million principal amount of 10% notes, about $80.7 million principal amount of 11¾% PIK notes and about 1.75 million warrants and to pay approximately $1.9 million in cash, including accrued interest.

The settlement date is expected to be Oct. 15.

New notes

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.

Consent solicitation

The subsidiaries were 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 tendered into an exchange offer were required to deliver consents and vice versa.

Quality Distribution said the amount of consents received is enough to adopt the proposed amendments.

Conditions

The tender offer and the exchange offer for the 9% notes were conditioned on at least 80% of the outstanding principal amount of the 9% notes being tendered in the offers on a combined basis. This condition was originally 90% and was later lowered.

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

The exchange offers and the tender offer were each conditioned on the completion of the others. The exchange offer for the floating-rate notes was also conditioned on the receipt of the needed consents for both series of floating-rate notes and the 9% notes.

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

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

Revised terms

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 coupon on the new senior subordinated notes was increased to 11¾% from 11%.

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 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. Holders who tendered after that time would have received either $900 principal amount of new notes or $500 in cash.

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

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