Midwest Banc wraps exchange offer for convertibles; holders vote to strike some dividend rights

By Susanna Moon

Chicago, Jan. 22 - Midwest Banc Holdings, Inc. said it accepted for exchange all of the 1,414,441, or 82%, of its 1,725,000 outstanding depositary shares tendered as of 5 p.m. ET on Jan. 21, the expiration date.

Midwest began an offer on Dec. 3 to exchange up to 17.25 million common shares for outstanding depositary shares representing the company's series A noncumulative redeemable convertible perpetual preferred stock.

The company said it will issue about 10 million shares on settlement, which will occur on Jan. 25.

The exchange offer will result in the retirement of depositary shares with a liquidation preference of about $35.4 million. Following settlement, 310,559 depositary shares with a liquidation preference of about $7.8 million will remain outstanding.

At the special meeting of the preferred holders on Jan. 21, holders approved proposals to amend the company's charter to eliminate some dividend rights, the election of directors and the proposal to authorize the issuance of senior preferred stock to the U.S. Treasury. The proposals to eliminate dividend rights and the election of directors require approval by the company's common stockholders.

"We appreciate the support and confidence of our depositary shareholders. Thanks to their votes and tenders, we have finished a very important part of our overall capital restructuring," Midwest chief executive Roberto R. Herencia said in a press release.

"Since my arrival in May 2009, our vision for Midwest has been to build a new foundation to support its long term growth and profitability. With the exchange offer completed we are closer to realizing that vision.

"This successful exchange offer builds upon prior positive developments in our efforts to strengthen our financial position, such as the previously disclosed forbearance agreement with our primary lender, our advanced discussions with the U.S. Treasury regarding converting its preferred shares in the company into common equity and our ongoing discussions with prospective investors in an effort to raise additional equity capital. While we know that much challenging work remains ahead, I and the rest of our team will devote all of our efforts to successfully complete the remainder of our capital plan."

Midwest sets exchange ratio

Midwest Banc said on Jan. 12 that it will issue 7.0886 shares of common stock for each depositary share accepted in its exchange offer.

Each depositary share has a liquidation amount of $25.00 and represents one one-hundredth of a preferred.

The exchange ratio was determined by dividing $2.80 by $0.3950, which was the average volume-weighted average price of the company's common stock during the five consecutive trading days that ended on Jan. 11.

Midwest Banc is not offering any consideration for undeclared dividends.

Consent solicitation

As previously reported, the company also sought approval to amend the certificate of designation of the preferreds.

According to the preliminary proxy statement filed with the Securities and Exchange Commission, Midwest was seeking approval to eliminate the requirements that:

• Full dividends must have been paid on the preferreds before the company can pay dividends on its common stock or any other securities junior to the preferreds;

• If full dividends are not paid in full on the preferreds, dividends on all series of stock ranking equally with the preferreds must be declared on a proportional basis;

• A series of preferred stock ranking equally with the preferreds cannot be issued without the approval of holders of the depositary shares if the new series will have cumulative dividends; and

• No dividends will be paid or declared on any particular series of preferred stock unless dividends are paid or declared pro rata on all shares of outstanding preferred stock that rank equally as far as dividends.

The amendments also eliminate the right of holders of depositary shares to elect two directors if dividends have not been paid for six quarterly dividend periods.

Finally, the company also sought approval to issue a senior class of convertible preferred stock to the U.S. Treasury in exchange for the existing $84.78 million of series T fixed-rate cumulative perpetual preferred stock it holds.

Holders who tendered had to consent to the changes.

The record date for holders of the depositary shares entitled to vote on the changes is Nov. 27.

Capital plan

Midwest said the exchange offer is part of its larger capital plan designed to increase its common equity capital so that it can withstand continued and potentially more adverse economic conditions and credit scenarios.

The other elements of the capital plan include negotiating with the company's primary lender to restructure $55 million of senior debt and $15 million of subordinated debt, selling common and/or convertible preferred stock in one or more private or public offerings and asking the U.S. Treasury to exchange the series T preferreds for a new series of convertible preferred stock that would later be converted into common stock.

The company said the credit quality of Midwest Bank and Trust Co.'s loan portfolio continued to deteriorate in the fourth quarter and that it expects the bank will be undercapitalized as of Dec. 31.

The continued deterioration of the loan portfolio could result in the company's inability to access sufficient and cost-effective sources of liquidity necessary to fund its operations and meet its payment obligations under its existing funding commitments, Midwest said.

Illinois Stock Transfer Co. (800 757-5755) is the exchange agent, and Morrow & Co., LLC (800 483-1314 or, for banks and brokerage firms, 203 658-9400) is the information agent.

Melrose Park, Ill.-based Midwest Banc is the holding company for Midwest Bank and Trust.

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