MoneyGram amends recapitalization agreement with investment group

By Lisa Kerner

Charlotte, N.C., March 17 - MoneyGram International, Inc. entered into an amended agreement with an investment group led by Thomas H. Lee Partners, LP and Goldman, Sachs & Co. in regards to a comprehensive recapitalization of the company.

The transaction is expected to close on March 25, according to a MoneyGram news release.

On Feb. 12, MoneyGram announced a debt financing package for its recapitalization by the investment group that included a new $200 million term loan B and up to $500 million of senior second-lien notes.

It was previously reported that under the terms of the amended agreement:

• The investors will purchase $760 million of series B and series B-1 preferred stock, which will initially be convertible into approximately 79% of the common equity of MoneyGram;

• The investors' convertible voting preferred stock will be convertible into shares of MoneyGram at a price of $2.50 per share, down from $5.00 per share in the original agreement;

• If MoneyGram is unable to pay a cash dividend on the series B and series B-1 preferred stock when required, dividends will accrete at 15%, rather than 12%;

• MoneyGram is allowed to solicit and discuss alternative proposals;

• MoneyGram will be required to raise an incremental $50 million of debt on terms and conditions acceptable to the investors; and

• The transaction would be structured as a purchase of convertible preferred stock in a one-step transaction, rather than a two-step transaction as originally proposed.

MoneyGram's board also approved an agreement with affiliates of Goldman Sachs to provide $500 million in debt financing. The company is expected to obtain an additional $250 million in senior debt financing prior to the close of the transaction, the release stated.

The committed debt from affiliates of Goldman Sachs provides for 13.25% senior second-lien notes with a 10-year term, non-callable for five years. MoneyGram's release said that the interest rate on the $250 million of additional senior debt is expected to be no more than Libor plus 500 basis points and may be sold at a discount.

MoneyGram expects to have $350 million outstanding or available under its existing credit agreement. However, the company said it is seeking amendments from its existing lenders to modify certain terms and to permit those amounts to remain outstanding or available.

Duff & Phelps LLC and J.P. Morgan Securities Inc. have been retained as MoneyGram's financial advisers. J.P. Morgan Securities also acted as placement agent for MoneyGram on the transaction.

Once the transaction is complete, the investors will receive both voting and nonvoting preferred stock. The convertible preferred stock will pay a cash dividend of 10%. MoneyGram may elect to accrue the dividends at a rate of 12.5% during the first five years in lieu of paying in cash. After five years, the dividends will accrue at a rate of 15% if MoneyGram is unable to pay dividends in cash.

According to MoneyGram's release, the convertible preferred stock will be convertible into shares of common stock or non-voting common equivalents of MoneyGram at a price of $2.50 per common share.

Under the agreement, the investors will appoint two representatives and two observers to MoneyGram's board, which will be reduced in size to include three independent directors, the chief executive officer and members appointed by the investors.

MoneyGram, in a prior release, announced that it completed the sale of certain portfolio assets as part of the original agreement, resulting in a total loss of some $1.6 billion.

As a result of these portfolio sales, MoneyGram is no longer in compliance with state minimum net worth requirements where it is licensed to conduct its money transfer and other payment services businesses, possibly resulting in fines or penalties. MoneyGram said it expects to be in compliance once the recapitalization deal is completed.

The company's investment portfolio currently consists primarily of cash and cash equivalents, U.S. agencies and agency residential mortgage-backed securities, a prior news release stated.

It was previously reported that under the recapitalization, Thomas H. Lee and Goldman Sachs will make an equity investment of about $710 million, with a maximum amount of $775 million.

MoneyGram is a Minneapolis-based provider of payment services.

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