The Wall Street Journal-20080213-Large Transfer- MoneyGram To Sell Big Stake to Investors

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Large Transfer: MoneyGram To Sell Big Stake to Investors

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A group of investors led by Thomas H. Lee Partners LP and Goldman Sachs Group Inc. has agreed to buy control of ailing money-transfer company MoneyGram International Inc., which has been hit by losses on mortgage-related investments

Under the agreement, which was expected, the investor group will make an equity investment of as much as $775 million in nonvoting preferred stock -- or 19.9% of MoneyGram's shares outstanding assuming the investment is $710 million -- with an initial interest rate of 20% and a 10% cash dividend. Goldman will provide debt financing up to $500 million at a 13.25% rate for a 10-year term.

When converted, the investment would give the investor group a 63% stake in MoneyGram. The Minneapolis company had said it would sell a stake of up to 65% to investors. As of Monday's close, MoneyGram's market capitalization was $438.9 million.

Last month, MoneyGram, warning that losses were ballooning, said it might recapitalize by selling as much as a 65% stake to an investment group led by Boston private-equity firm Thomas H. Lee Partners.

The company also has until March 7 to "go shop" for better offers. If no offers are forthcoming, the deal, which has a $15 million breakup fee, will close within five days after that.

As a condition for closing the deal, MoneyGram must sell off $1.9 billion in securities at a loss, in addition to the $1.8 billion it has already sold at a loss of $380 million.

MoneyGram also announced an extension of its financial-services agreement with Wal-Mart Stores Inc. through 2013, but only if the recapitalization goes through.

The company said it expected to take a "substantial" fourth-quarter charge -- but said it is shifting its investment strategies away from the asset-backed securities that got it into trouble.

MoneyGram's shares were down 40 cents, or 7.5%, to $4.91 in 4 p.m. composite trading on the New York Stock Exchange yesterday.