The rating agency, Moody’s Investors Services, a unit of Moody’s Corporation (MCO), provided debt ratings to MoneyGram International Inc. (MGI) and upgraded its outlook.
Moody’s assigned new debt ratings of Ba1 and CFR of B1. In addition, Moody’s raised its debt outlook to positive on the new debt refinancing for MoneyGram Payment Systems Worldwide.
MoneyGram Payment Systems Worldwide recently planned to refinance its existing senior credit facilities and replace them with a new $540 million facility, with Bank of America Merrill Lynch, a unit of Bank of America Corporation (BAC), J.P. Morgan (JPM), Citigroup, Inc. (C), Deutsche Bank AG (DB) and Wells Fargo.
The deal has been structured as a $150 million, five-year revolving credit and a $390 million, 6.5-year B term loan. Furthermore, the proceeds will refinance the issuer’s existing A and B term loans and fund the cash portion of the conversion premium on the issuer’s preferred stock. However, the pricing has not been disclosed.
In addition, MoneyGram planned a recapitalization facility with private investor Thomas H Lee and Goldman Sachs Group, Inc. (GS).
Under the recapitalization plan, Thomas H. Lee Partners and Goldman Sachs will convert MoneyGram’s preferred shares into common shares or common share equivalents.
Following the refinancing and recapitalization plan in March 2011, Standard & Poor’s Ratings Services also upgraded MoneyGram a notch closer to investment-grade status.
S&P lifted the rating from B+ to BB- reflecting reduced leverage and an extended debt maturity profile. The rating agency affirmed a stable outlook.
However, S&P believes that MoneyGram’s ratings are limited by the poor business diversification, relatively high agent concentration in its Global Funds Transfer segment and exposure to regulatory risk. S&P also stated that continued leverage reduction might result in increase in the debt ratings of MoneyGram.
MoneyGram’s loss narrowed in the fourth quarter and fiscal year 2010 as operating costs and other expenses eased. We believe that its business has been improving recently in a recovering economy as it expands internationally with new partners.
Total money transfer transactions originating outside the U.S. increased 18% year over year in the fourth quarter of 2010. Although, transaction growth in Spain and Mexico has shown some improvement, it is yet to boost MoneyGram’s non-U.S. transactions significantly.
MoneyGram’s core business is expanding with a vast global network, increasing money transfer transaction volumes and disciplined expense management. 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, once the global economy rebounds to its historical highs.
MoneyGram is a global payment services company, with international wiring of money being a key part of its business. The company also offers bill payment and money order services. It competes with Western Union Co. (WU).
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