MoneyGram Reduces Debt - Analyst Blog

Taking its debt reduction initiative one step ahead, on Friday MoneyGram International Inc. (MGI) announced an optional prepayment of $75 million against its  tranche B term loan under its senior secured credit facility.

MoneyGram reduced its loan by 7.5% by repaying a significant part on Friday, 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, the company 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.

Earnings Recap

MoneyGram reported second quarter loss per share of 30 cents, a penny higher than the Zacks Consensus Estimate of a loss of 29 cents but substantially lower than the loss of 60 cents reported in the year-ago quarter.

Total expenses decreased 21.9% to $151.9 million against $194.4 million in the year-ago quarter. Higher money transfer transaction volumes and decreased operating expenses were offset by poor top line on lower revenue per transaction and continued moderation in Mexico and Spain.

As of September 30, 2010, MoneyGram had outstanding debt worth $716 million. This has now been reduced to about $641 million, reflecting the company's rigorous debt payment strategy so that it can focus on increasing operating efficiencies.

Overall, though 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, once the global economy rebounds to its historical highs.

While MoneyGram has been eliminating debt, arch-rival Western Union Co. (WU) last week announced a 16.67% hike in its annual dividend, supported by its generation of strong cash from operations of over $1 billion for the past three years. Western Union has also been repurchasing shares to return wealth in more ways than one, whereas, MoneyGram is yet to recoup losses in its business and generate extra cash to be distributed to its investors.

 
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