MoneyGram to Raise $500M - Analyst Blog

On Tuesday, MoneyGram International Inc. (MGI) announced the regulatory filing for the authorization of stock and debt offering worth $500 million. The company is pursuing to sell equity and preferred shares, debt securities or any combination of securities, depending on the capital needs and market conditions. The proceeds are expected to be utilized for general business operations.

While the company has been vigorously eliminating its debt under the tranche B term loan, MoneyGram is also seeking to improve its capital position. On Friday, the company reduced its loan by 7.5% through an optional repayment of $75 million, thereby lowering its total outstanding debt by 35% to $352 million ever since January 2009.

MoneyGram has been continuously making steady attempts to discard its debt under the senior secured credit facility. As a result, the company repaid $187 million in its tranche B term loan in 2009. In 2010, MoneyGram made an optional prepayment of $30 million, each in April, June and September 2010, and the latest one being the fourth consecutive payment, totalling to $165 million in this year.

However, MoneyGram is expected to have additional capital requirements in the upcoming quarters in order to enhance business operations. MoneyGram has been executing the first phase of its global initiative program in order to streamline its operations to increase efficiency and promote a scalable cost structure. These initiatives also call for additional capital for a smooth execution.

Additionally, MoneyGram's core money transfer business operation has been facing headwinds despite a vast global network. The company is experiencing a declining trend in investment, fee and other revenue, which are the prime top line drivers.

Lower net securities gains, revenue per transaction and continued sluggishness in Mexico and Spain has been further deteriorating the financials. Hence, going forward, additional funding is crucial for business sustenance.

Another area of concern comes from rising competitive pressures. While MoneyGram has been exploring new avenues to raise capital, arch rival, Western Union Co. (WU), has been returning wealth through dividend hikes and share repurchases, which reflects the latter's strong capital position along with minimum balance sheet risk. Western Union has also raised its outlook for 2010 based on its financial strength.

Overall, we believe that MoneyGram's idea of raising capital is justified by the above opinions. This could also help the company boost its operations that enjoy a strong global network. However, losses over the last few quarters also cast a shadow and limit any major upside in the near term.

Hence, we maintain a Neutral rating on the stock, and believe that MoneyGram 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.

 
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