Finally, MoneyGram International Inc. (MGI) has taken a path to revival and proposed a recapitalization program with its investors, including private equity firm Thomas H. Lee Partners (THL) and investment bank Goldman Sachs Group Inc. (GS) to improve its dangling capital position. However, a confirmation on the date and approval of shareholders is still pending.
Accordingly, the recapitalization program will enable the conversion of the previously held preferred shares into common shares of MoneyGram. As a result, THL will now own 55.1% in MoneyGram while Goldman will enjoy a stake of about 30.3% in the company.
The recapitalization program further offers about 28.2 million shares and $140.8 million in cash to THL, while Goldman will receive about 0.016 million shares along with a cash payment of $77.5 million as considerations from MoneyGram.
Previously, an investment conglomerate led by THL and Goldman bought a 63% equity stake in MoneyGram for $710 million, in order to bail out the latter during the peak of financial crisis in March 2008. This stake was held in the form of preferred share interest.
MoneyGram’s financial position was severely crippled in 2008 when it realized that most of its investments included subprime mortgage-backed securities and collateralized debt obligations (CDOs). At that time, the company had also received a $500 million loan from affiliates of Goldman.
However, the incorporation of the recapitalization program will end the dilution of the stock in MoneyGram and the continuous dividend payment against the preferred shares, thereby simplifying MoneyGram’s complex capital structure.
Further, a healthy capital constitution also paves way for acquiring a new senior credit facility, which is projected to be utilized for refinancing existing debt as well as for funding the recapitalization program. MoneyGram is already negotiating with certain banks to avail this credit facility that will consist of a revolver and a term loan.
The money transfer business remains the driving force for MoneyGram. The company further continues to explore new growth avenues in untested locations by incorporating latest and flexible technology that facilitates transfers through mobile phones, prepaid cards or ATMs, in order to speed up its money transfer services and enhance the remittance volumes. These efforts also help to retain the company’s competitive vigour, particularly against the steady global growth of its arch-rival Western Union Co. (WU).
Although the current economic turmoil has weakened both the revenue growth and the operating leverage of MoneyGram, we believe that the company has the potential to overcome the impact of the volatile U.S. dollar against other currencies and additional losses in its investment portfolio. This will result from the revamping of the company’s capital position through the successful completion of the recapitalization program followed by a steady economic recovery.