The bank debt for tractor and trailer operator Quality Distribution slumped briefly last week after the company disclosed accounting irregularities at its Power Purchasing subsidiary. Bids dipped as low as 99, before the paper recovered to the 100-101 range after investors became comfortable with the disclosure. But the volatility created the opportunity for a few trades.
The long-term effect will be minimal, Thomas Finkbiner, ceo, told Loan Market Week. "It's a regrettable thing," he added.
Moody's Investors Service, however, was not as comfortable with the news. It downgraded Quality Distribution's bank debt from B1 to B2 and left the company under review. "Our feeling is that there is no basis for what Moody's did," said Finkbiner.
Moody's is concerned that the corrective measures will divert cash flow from debt reduction and weaken the company's overall debt protection measures. In addition, the rating agency believes that the issues could impact the company's business model and expose the company to addition legal and regulatory cost.
Quality Distribution has a $75 million revolver and a $140 million "B" loan. J.P. Morgan, Deutsche Bank, Bear Stearns and Credit Suisse First Boston hold roles on the company's credit. Quality Distribution completed the new credit in November. At that time the company was also completing an initial public offering and a private offering of 9% senior subordinated notes. Proceeds from those financings paid down the company's existing debt.