Meadowbrook Insurance Group Inc. (MIG) announced that it has priced and agreed to sell to initial purchasers in a private offering $85 million aggregate principal amount of its Cash Convertible Senior Notes due 2020. The company noted that it has also granted the initial purchasers of the notes an option to purchase up to an additional $15 million aggregate principal amount of the notes.
The notes are unsecured and bear interest at a rate of 5.00% per year, payable semiannually on March 15 and September 15 of each year, commencing on September 15, 2013.
The notes will be convertible at the option of the holders into solely cash in certain circumstances and during certain periods. The notes will not be convertible into Meadowbrook common stock or any other securities under any circumstances. The notes will mature on March 15, 2020, unless earlier repurchased or converted into cash in accordance with their terms prior to such date. The conversion rate for the notes initially will be 108.8732 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $9.18 per share of Meadowbrook common stock.
The initial conversion price of the notes represents a premium of about 37.50% to the $6.68 per share last reported sale price of the Company's common stock on March 12, 2013. The offering of the notes is expected to close on March 18, 2013, subject to customary closing conditions.
In connection with the pricing of the notes, the company entered into privately negotiated cash convertible note hedge transactions with one or more of the initial purchasers of the notes or their respective affiliates or other financial institutions. The cash convertible note hedge transactions are expected to reduce the Company's exposure to potential cash payments due upon conversion of the notes in excess of the principal amount thereof.
The company stated that it also entered into privately negotiated warrant transactions with the option counterparties, which could have a dilutive effect to the extent that the price of the Company's common stock exceeds the applicable strike price of the warrants. If the initial purchasers exercise their option to purchase additional notes, the company may increase the size of the cash convertible note hedge transactions and enter into additional warrant transactions.
The company expects to use the net proceeds from the offering to pay the cost of the cash convertible note hedge transactions , after such cost is partially offset by the proceeds to Meadowbrook from the warrant transactions.
The company noted that it intends to use substantially all of the remainder of the net proceeds from the offering in order to make capital contributions to its insurance company subsidiaries in order to support such subsidiaries' operations and financial strength, with the balance of any proceeds to be used to repay its outstanding indebtedness.
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