Note 11 - Long-Term Debt

12 Months Ended

Dec. 31, 2011

11.	SENIOR AND SUBORDINATED DEBT

The following table presents the Company’s senior and subordinated debt by issuance.

Senior and Subordinated Debt

(Dollar amounts in thousands)

	December 31,
	2011			2010
5.875% senior notes due in 2016
Principal amount	$	115,000		$	-
Discount		(600	)		-
Total senior notes due in 2016		114,400			-
5.85% subordinated notes due in 2016
Principal amount		50,500			50,500
Discount		(24	)		(29	)
Total subordinated notes due in 2016		50,476			50,471
6.95% junior subordinated debentures due in 2033
Principal amount		87,351			87,351
Discount		(74	)		(78	)
Total junior subordinated debentures		87,277			87,273
Total long-term debt	$	252,153		$	137,744

In November 2011, the Company issued $115.0 million of 5-year senior notes. The notes were issued at a discount and have a fixed coupon interest rate of 5.875% per annum, payable semi-annually. The notes are redeemable prior to maturity only at the Company’s option and are unsecured, senior obligations of the Company. The proceeds were primarily used to fund the redemption of preferred stock. For details relating to the redemption of preferred stock, refer to Note 12, “Material Transactions Affecting Stockholders’ Equity.” The notes contain provisions that require the Company’s debt to remain above a certain credit rating by each of the major credit rating agencies. If the Company’s debt were to fall below that credit rating, it would be in violation of those provisions and the interest rate would be increased.

In 2006, the Company issued $99.9 million of 10-year subordinated notes (the “Notes”). The notes were issued at a discount and have a fixed coupon interest rate of 5.85% per annum, payable semi-annually. The notes are redeemable prior to maturity only at the Company’s option and are junior and subordinate to the Company’s senior indebtedness. For regulatory capital purposes, the notes qualify as Tier 2 Capital.

In 2003, the Company formed First Midwest Capital Trust I (“FMCT”), a statutory business trust, organized for the sole purpose of issuing trust-preferred securities to third party investors. FMCT issued $125.0 million in preferred securities and 3,866 shares of common stock and used the proceeds to purchase junior subordinated debentures issued by the Company (“Subordinated Debentures”). The trust-preferred securities of the trust represent preferred beneficial interests in the assets of the trust and are subject to mandatory redemption, in whole or in part, upon payment of the junior subordinated debentures held by the trust. The common securities of the trust are wholly owned by the Company. The trust’s ability to pay amounts due on the trust-preferred securities is solely dependent upon the Company making payment on the related junior subordinated debentures. The Company’s obligations under the junior subordinated debentures and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of the trust’s obligations under the trust-preferred securities issued by the trust. The guarantee covers the distributions and payments on liquidation or redemption of the trust-preferred securities, but only to the extent of funds held by the trust.

FMCT qualifies as a variable interest entity for which the Company is not the primary beneficiary; therefore, the trust is not consolidated in the Company’s financial statements. The subordinated debentures issued by the Company to the trust are included in senior and subordinated debt in the Company’s Consolidated Statements of Financial Condition with the corresponding interest distributions recorded as interest expense in the Company’s Consolidated Statements of Income. The common shares issued by the trust are included in other assets in the Company’s Consolidated Statements of Financial Condition.

In 2009, the Company completed an offer to exchange a portion of the notes and a separate offer to exchange a portion of the subordinated debentures for newly issued shares of Common Stock. The exchanges strengthened the composition of First Midwest’s capital base by increasing its Tier 1 common and tangible common equity ratios, while also reducing the interest expense associated with the debt securities. As a result of the exchange offers, $39.3 million of subordinated debentures were retired at a discount of 20% in exchange for 3,058,410 shares of Common Stock, and $29.5 million of notes were retired at a discount of 10% in exchange for 2,584,695 shares of Common Stock. In 2009, the Company also retired an additional $1.0 million of subordinated debentures at a discount of 20% for cash and $20.0 million of notes at a discount of 7% for cash. In the aggregate, the exchange offers and the subsequent retirement of debt for cash resulted in the recognition of $15.3 million in pre-tax gains in 2009. These gains are shown as a separate component of noninterest income in the Consolidated Statements of Income.