Debt

The Company’s borrowings consisted of the following at September 30, 2012 and December 31, 2011:



(Amounts in Thousands)	2012		2011
Subordinated debentures	123,714		123,714
Convertible senior notes	160,507		138,506
Secured loan agreements	9,289		10,018
Promissory notes	8,000		7,362
	$	301,510	$	279,600

Aggregate scheduled maturities of the Company’s borrowings at September 30, 2012 are:



(Amounts in Thousands)
2012	$248
2013	1,021
2014	1,068
2015	1,116
2016	1,167
Thereafter	296,890	(1)


(1)	Amount reflected in balance sheet for convertible senior notes is net of unamortized original issue discount of $39,493.

Revolving Credit Agreement

On August 10, 2012, the Company entered into a four-year, $200,000 credit agreement (the “Credit Agreement”), among JPMorgan Chase Bank, N.A., as Administrative Agent, KeyBank National Association and SunTrust Bank, as Co-Syndication Agents, Associated Bank, National Association and Lloyds Securities Inc., as Co-Documentation Agents and the various lending institutions party thereto. The credit facility is a revolving credit facility with a letter of credit sublimit of $100,000 and an expansion feature not to exceed $100,000. In connection with entering into the Credit Agreement, the Company terminated its existing $150,000 credit agreement, dated as of January 28, 2011 with JPMorgan Chase Bank, NA. Fees associated with the Credit Agreement were approximately $968. The Credit Agreement contains certain restrictive covenants customary for facilities of this type (subject to negotiated exceptions and baskets), including restrictions on indebtedness, liens, acquisitions and investments, restricted payments and dispositions. There are also financial covenants that require the Company to maintain a minimum consolidated net worth, a maximum consolidated leverage ratio, a minimum fixed charge coverage ratio, a minimum risk-based capital and a minimum statutory surplus. The Company was in compliance with all covenants as of September 30, 2012.

As of September 30, 2012, the Company had no outstanding borrowings under this Credit Agreement. The Company had outstanding letters of credit in place under this Credit Agreement at September 30, 2012 for $49,015, which reduced the availability for letters of credit to $50,985 as of September 30, 2012, and the availability under the facility to $150,985 as of September 30, 2012.

Borrowings under the Credit Agreement bear interest at (x) the greatest of (a) the Administrative Agent’s prime rate, (b) the federal funds effective rate plus 0.5 percent or (c) the adjusted LIBO rate for a one month interest period on such day plus 1 percent, plus (y) a margin that is adjusted on the basis of the Company’s consolidated leverage ratio. Eurodollar borrowings under the Credit Agreement will bear interest at the adjusted LIBO rate for the interest period in effect plus a margin that is adjusted on the basis of the Company’s consolidated leverage ratio. The interest rate on the credit facility as of September 30, 2012 and 2011 was 2.50%. The Company recorded total interest expense of approximately $450 and $595 for the three months ended September 30, 2012 and 2011, respectively, and $1,468 and $2,013 for the nine months ended September 30, 2012 and 2011, respectively, under the Credit Agreement and the terminated credit agreement.

Fees payable by the Company under the Credit Agreement include a letter of credit participation fee (which is the margin applicable to Eurodollar borrowings and was 1.50% at September 30, 2012), a letter of credit fronting fee with respect to each letter of credit of .125% and a commitment fee on the available commitments of the lenders (a range of .20% to .30% based on the Company’s consolidated leverage ratio and was .25% at September 30, 2012).

Junior Subordinated Debt

The Company has established four special purpose trusts for the purpose of issuing trust preferred securities. The proceeds from such issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested by the trusts in junior subordinated debentures issued by the Company. In accordance with FASB ASC 810-10-25, the Company does not consolidate such special purpose trusts, as the Company is not considered to be the primary beneficiary. The equity investment, totaling $3,714 as of September 30, 2012 on the Company’s consolidated balance sheet, represents the Company’s ownership of common securities issued by the trusts. The debentures require interest-only payments to be made on a quarterly basis, with principal due at maturity. The debentures contain covenants that restrict declaration of dividends on the Company’s common stock under certain circumstances, including default of payment. The Company incurred $2,605 of placement fees in connection with these issuances which is being amortized over thirty years. The Company recorded $2,049 and $2,552 of interest expense for the three months ended September 30, 2012 and 2011, respectively, and $6,275 and $7,657 of interest expense for the nine months ended September 30, 2012 and 2011, respectively, related to these trust preferred securities.

The table below summarizes the Company’s trust preferred securities as of September 30, 2012:



(Amounts in Thousands) Name of Trust	Aggregate Liquidation Amount of Trust Preferred Securities		Aggregate Liquidation Amount of Common Securities		Aggregate Principal Amount of Notes		Stated Maturity of Notes	Per Annum Interest Rate % of Notes
AmTrust Capital Financing Trust I	$	25,000	$	774	$	25,774	3/17/2035	8.275	(1)
AmTrust Capital Financing Trust II	25,000		774		25,774		6/15/2035	7.710	(1)
AmTrust Capital Financing Trust III	30,000		928		30,928		9/15/2036	3.689	(2)
AmTrust Capital Financing Trust IV	40,000		1,238		41,238		3/15/2037	3.389	(3)
Total trust preferred securities	$	120,000	$	3,714	$	123,714


(1)	The interest rate will change to three-month LIBOR plus 3.40% after the tenth anniversary in 2015.


(2)	The interest rate is LIBOR plus 3.30%.


(3)	The interest rate is LIBOR plus 3.00%.

The Company entered into two interest rate swap agreements related to these junior subordinated debentures, which effectively convert the interest rate on the trust preferred securities from a variable rate to a fixed rate. Each agreement is for a period of five years and commenced on September 15, 2011 for tranche III and March 15, 2012 for tranche IV.

Convertible Senior Notes

In December 2011, the Company issued $175,000 aggregate principal amount of its 5.5% convertible senior notes due 2021 (the “Notes”) to certain initial purchasers in a private placement. In January 2012, the Company issued an additional $25,000 of the Notes to cover the initial purchasers’ overallotment option. The Notes bear interest at a rate equal to 5.5% per year, payable semiannually in arrears on June 15th and December 15th of each year, beginning June 15, 2012.

The Notes will mature on December 15, 2021 (the “Maturity Date”), unless earlier purchased by the Company or converted into shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). Prior to September 15, 2021, the Notes will be convertible only upon satisfaction of certain conditions, and thereafter, at any time prior to the close of business on the second scheduled trading day immediately preceding the Maturity Date. The conversion rate at September 30, 2012 is equal to 34.5759 shares of Common Stock per $1,000 principal amount of Notes, which corresponds to a conversion price of approximately $28.92 per share of Common Stock. The conversion rate is subject to adjustment upon the occurrence of certain events as set forth in the indenture governing the notes. Upon conversion of the Notes, the Company will, at its election, pay or deliver, as the case may be, cash, shares of Common Stock, or a combination of cash and shares of Common Stock.

Upon the occurrence of a fundamental change (as defined in the indenture governing the notes) involving the Company, holders of the Notes will have the right to require the Company to repurchase their Notes for cash, in whole or in part, at 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

The Company separately allocated the proceeds for the issuance of the Notes to a liability component and an equity component, which is the embedded conversion option. The equity component was reported as an adjustment to paid-in-capital, net of tax, and is reflected as an original issue discount (“OID”). The OID of $41,679 and deferred origination costs relating to the liability component of $4,750 will be amortized into interest expense over the term of the loan of the Notes. After considering the contractual interest payments and amortization of the original discount, the Notes effective interest rate was 8.57%. Transaction costs of $1,250 associated with the equity component were netted in paid-in-capital. Interest expense, including amortization of deferred origination costs, recognized on the Notes was $3,578 and $10,451 for the three and nine month periods ended September 30, 2012.

The following table shows the amounts recorded for the Notes as of September 30, 2012 and December 31, 2011:



(Amounts in Thousands)	September 30, 2012			December 31, 2011
Liability component
Outstanding principal	$	200,000		$	175,000
Unamortized OID	(39,493		)	(36,494		)
Liability component	160,507			138,506
Equity component, net of tax	27,092			23,785

Secured Loan Agreement

During February 2011, the Company, through a wholly-owned subsidiary, entered into a seven-year secured loan agreement with Bank of America Leasing & Capital, LLC in the aggregate amount of $10,800 to finance the purchase of an aircraft. The loan bears interest at a fixed rate of 4.45%, requires monthly installment payments of approximately $117 commencing on March 25, 2011 and ending on February 25, 2018, and a balloon payment of $3,240 at the maturity date. The Company recorded interest expense of approximately $107 and $117 for the three months ended September 30, 2012 and 2011, respectively, and approximately $328 and $288 of interest expense for the nine months ended September 30, 2012 and 2011, respectively, related to this agreement. The loan is secured by an aircraft that the subsidiary acquired in February 2011.

The agreement contains certain covenants that are similar to the Company’s revolving credit facility. Additionally, subsequent to February 25, 2012, but prior to payment in full, if the outstanding balance of this loan exceeds 90% of the fair value of the aircraft, the Company is required to pay the lender the entire amount necessary to reduce the outstanding principal balance to be equal to or less than 90% of the fair value of the aircraft. The agreement allows the Company, under certain conditions, to repay the entire outstanding principal balance of this loan without penalty.

Promissory Notes

In 2012, 800 Superior, LLC entered into two promissory notes with ACP Re, Ltd. totaling $5,000. 800 Superior, LLC is an entity in which both the Company and ACAC have a 50% ownership interest. The notes bore an interest rate of 2.00% per annum , which resulted in $20 and $43 of interest expense for the three and nine months ended September 30, 2012. The notes were paid in full in September 2012. For more information regarding these promissory notes, see Note 11. “Related Party Transactions.”

In September 2012, as part of its participation in the new New Market Tax Credit Program discussed in Note 13. "New Market Tax Credit", the Company entered into two promissory notes totaling $8,000. The loans are for a period of 15 years and have an average interest rate of 1.7% per annum. The Company recorded interest expense of approximately $12 for the three and nine months ended September 30, 2012.

Comerica Letter of Credit Facility

In connection with the Majestic acquisition discussed in Note 12 “Acquisitions,” the Company, through one of its subsidiaries, entered into a secured letter of credit facility with Comerica Bank during the three months ended September 30, 2011. The Company utilizes this letter of credit facility to comply with the deposit requirements of the State of California and the U.S. Department of Labor as security for the Company’s obligations to workers’ compensation and Federal Longshore and Harbor Workers’ Compensation Act policyholders. The credit limit is for $75,000 and was utilized for $49,801 as of September 30, 2012. The Company is required to pay a letter of credit participation fee for each letter of credit in the amount of 0.40%.

Other Letters of Credit

As of September 30, 2012, the Company, through certain subsidiaries, has additional existing stand-by letters of credit in the amount of $7,393 outstanding, which reduced the availability on the letters of credit to $11 as of September 30, 2012.