MoneyGram International, Inc.
Middle Market New Coverage: MoneyGram Contemplates Preferred Equity, Amend-and-Extend to Refinance $904M Term Loan due in 2020; Adjusted EBITDA Projected to Drop 8%-12% This Year
Wed 02/13/2019 18:50 PM
Relevant Documents:
Press Release
8-K
Presentation
MoneyGram International Inc. has sought feedback from existing lenders and potential investors about a refinancing of its $904 million term loan due in March 2020 that would entail issuing preferred equity to take out a portion of the facility and extending the remaining portion, according to sources. Alternatives to the preferred tranche could include junior lien or unsecured debt, the sources added.
During MoneyGram’s fourth-quarter earnings call on Monday, CFO Lawrence Angelilli said the company seeks to refinance its term loan due in March 2020 in the next 60 to 90 days. He added that relative to the existing facility, pricing and other terms will likely worsen and discussions with creditors will potentially involve adding a subordinated tranche to the structure.
Management said Monday that revenue and adjusted EBITDA would decline this year, as stepped-up efforts to obtain detailed personal information from customers to better prevent fraud drives attrition. The company said revenue and adjusted EBITDA should show growth in 2020 on a constant currency basis.
The forecast comes as the Dallas-based company reported fourth-quarter revenue and adjusted EBITDA that beat revised guidance provided in November. For the three months ended Dec. 31, 2018, revenue dropped 15% to $345.8 million on a reported basis year over year, while adjusted EBITDA fell 16% to $60 million.
MoneyGram, which serves 50 million people annually, announced on Feb.1 that it received an amendment to its credit agreement, allowing for breathing room under the leverage covenant in its revolver, which matures in September. In exchange, lenders reduced commitments and tightened covenants.
The term loan was quoted at 91.25/92 today, up from 88.5 at the midpoint before the call, according to a trading desk. MoneyGram stock closed down 4% at $2.26, for a market capitalization of $125.7 million.
Financials Deterioration
Revisions to the company’s full-year guidance in November from its May guidance implied fourth-quarter revenue would be about $340 million, or a 17% drop year over year, and fourth-quarter adjusted EBITDA would be about $48.6 million, or a 32% decline year over year.
Angelilli said in November on the company’s third-quarter earnings call that 2018 revenue would decline by 10% year over year to $1.44 billion and adjusted EBITDA would fall 15% to $234.5 million. MoneyGram reported full-year revenue of $1.45 billion and full-year adjusted EBITDA of $245.9 million, down 10% and 11%, respectively. The company attributed $122 million, or 8%, of its revenue decline in 2018 to de-risking the business through transaction- and corridor-specific compliance controls, according to the fourth-quarter presentation.
Fee and other revenue, which includes the global funds transfer and financial paper products operations, came in at $333.7 million, or 96% of the $345.8 million total fourth-quarter revenue. Investment revenue, earned from the investment of funds generated from the sale of checks and money orders, was $14 million, or about 4% of total revenue.
In the global funds transfer business, fourth-quarter money transfer revenue declined 17% year over year to $302.9 million, with digital revenue making up 16% of money transfer revenue, while fourth-quarter bill payment revenue fell 17% year over year to $16.8 million. In the financial paper products segment, fourth-quarter money order revenue grew 5% year over year to $13.7 million and fourth-quarter official check revenue jumped 44% year over year to $12.4 million.
Adjusted EBITDA margin was flat year over year in the fourth quarter at 17.4% and for the full year at about 17%. Management attributed the margin stability to cost cuts.
MoneyGram said in its fourth-quarter press release that it expects 2019 revenue to edge down 2% to 4% on a constant currency basis and adjusted EBITDA to fall 8% to 12% on a constant currency basis.
The company said it expects the bulk of the revenue and adjusted EBITDA declines to occur in the first half of the year as a result of the timing of compliance changes implemented last year. The company said in the fourth-quarter investor presentation that first-quarter comparables will be the primary challenge, given that compliance changes were not fully put in place until mid-2018.
Revolver Amendment
The company said in a corporate filing on Feb. 1 that it relaxed the maximum secured leverage ratio governing its credit agreement in exchange for revolver lenders reducing their commitments to $45 million from $85.8 million and tightening certain negative covenant baskets when pro forma secured leverage exceeds 3.75x. The amendment requires the company to use month-end cash in excess of $140 million to pay outstanding revolver debt and restricts the company from drawing on the revolver if it has more than $140 million of cash on hand. The revolver was undrawn as of Feb. 1.
Under the amendment, the leverage covenant was reset at 4x for the fourth quarter of 2018, compared with 3.75x previously. It increases to 4.25x for the first quarter of 2019, versus 3.5x, and to 4.5x for the second quarter of 2019, versus 3.5x.
Debt Load
MoneyGram reported $901 million of net debt and $145.5 million of cash as of Dec. 31, 2018, compared with $902.8 million of net debt and $208.8 million of cash at the end of the third quarter. Net leverage stood at 3.66x as of Dec. 31, compared with 3.29x at year-end 2017.
Angelilli said in November that the company expects to have sufficient liquidity to maintain a normal level of working capital of about $120 million. As of Dec. 31, total liquidity stood at $231.3 million.
Fourth-quarter adjusted FCF fell 18% year over year to $21.1 million, while full-year 2018 FCF edged down 4% year over year to $101 million, due to the impact of de-risking on revenue offset by reductions in capital expenditure.
Consumer Fraud
The company reached an agreement with the U.S. Department of Justice and the Federal Trade Commission in November 2018 to pay $125 million to victims of consumer fraud, with $70 million to be paid to the government in the fourth quarter of 2018 and $55 million by May 2020. Angelilli said on the third-quarter earnings call in November that the company could focus on refinancing both the revolver and the term loan in light of agreement, which extends the deferred prosecution agreement, or DPA, for 30 months from November 2018.
Failed Sale
Alibaba Group’s Ant Financial dropped its $1.2 billion bid for MoneyGram in January 2018 after the Committee on Foreign Investment in the U.S. refused to approve the deal. A number of factors contributed to the deal being scrapped, including concerns of Chinese access to big data and personal information and higher levels of scrutiny of Chinese acquisitions under the Trump administration, according to Reorg M&A.
Ant Financial sweetened its offer in April 2017 to $18 per share compared with the original $13.25 valuation three months earlier, after Euronet Worldwide submitted an unsolicited competing bid in March 2017 for $15.20 per share.
The company incurred $2 million in costs connected to the terminated merger, according to its fourth-quarter 2017 earnings.
MoneyGram did not respond to requests for comment.
Press Release
8-K
Presentation
MoneyGram International Inc. has sought feedback from existing lenders and potential investors about a refinancing of its $904 million term loan due in March 2020 that would entail issuing preferred equity to take out a portion of the facility and extending the remaining portion, according to sources. Alternatives to the preferred tranche could include junior lien or unsecured debt, the sources added.
During MoneyGram’s fourth-quarter earnings call on Monday, CFO Lawrence Angelilli said the company seeks to refinance its term loan due in March 2020 in the next 60 to 90 days. He added that relative to the existing facility, pricing and other terms will likely worsen and discussions with creditors will potentially involve adding a subordinated tranche to the structure.
Management said Monday that revenue and adjusted EBITDA would decline this year, as stepped-up efforts to obtain detailed personal information from customers to better prevent fraud drives attrition. The company said revenue and adjusted EBITDA should show growth in 2020 on a constant currency basis.
The forecast comes as the Dallas-based company reported fourth-quarter revenue and adjusted EBITDA that beat revised guidance provided in November. For the three months ended Dec. 31, 2018, revenue dropped 15% to $345.8 million on a reported basis year over year, while adjusted EBITDA fell 16% to $60 million.
MoneyGram, which serves 50 million people annually, announced on Feb.1 that it received an amendment to its credit agreement, allowing for breathing room under the leverage covenant in its revolver, which matures in September. In exchange, lenders reduced commitments and tightened covenants.
The term loan was quoted at 91.25/92 today, up from 88.5 at the midpoint before the call, according to a trading desk. MoneyGram stock closed down 4% at $2.26, for a market capitalization of $125.7 million.
Financials Deterioration
Revisions to the company’s full-year guidance in November from its May guidance implied fourth-quarter revenue would be about $340 million, or a 17% drop year over year, and fourth-quarter adjusted EBITDA would be about $48.6 million, or a 32% decline year over year.
Angelilli said in November on the company’s third-quarter earnings call that 2018 revenue would decline by 10% year over year to $1.44 billion and adjusted EBITDA would fall 15% to $234.5 million. MoneyGram reported full-year revenue of $1.45 billion and full-year adjusted EBITDA of $245.9 million, down 10% and 11%, respectively. The company attributed $122 million, or 8%, of its revenue decline in 2018 to de-risking the business through transaction- and corridor-specific compliance controls, according to the fourth-quarter presentation.
Fee and other revenue, which includes the global funds transfer and financial paper products operations, came in at $333.7 million, or 96% of the $345.8 million total fourth-quarter revenue. Investment revenue, earned from the investment of funds generated from the sale of checks and money orders, was $14 million, or about 4% of total revenue.
In the global funds transfer business, fourth-quarter money transfer revenue declined 17% year over year to $302.9 million, with digital revenue making up 16% of money transfer revenue, while fourth-quarter bill payment revenue fell 17% year over year to $16.8 million. In the financial paper products segment, fourth-quarter money order revenue grew 5% year over year to $13.7 million and fourth-quarter official check revenue jumped 44% year over year to $12.4 million.
Adjusted EBITDA margin was flat year over year in the fourth quarter at 17.4% and for the full year at about 17%. Management attributed the margin stability to cost cuts.
MoneyGram said in its fourth-quarter press release that it expects 2019 revenue to edge down 2% to 4% on a constant currency basis and adjusted EBITDA to fall 8% to 12% on a constant currency basis.
The company said it expects the bulk of the revenue and adjusted EBITDA declines to occur in the first half of the year as a result of the timing of compliance changes implemented last year. The company said in the fourth-quarter investor presentation that first-quarter comparables will be the primary challenge, given that compliance changes were not fully put in place until mid-2018.
Revolver Amendment
The company said in a corporate filing on Feb. 1 that it relaxed the maximum secured leverage ratio governing its credit agreement in exchange for revolver lenders reducing their commitments to $45 million from $85.8 million and tightening certain negative covenant baskets when pro forma secured leverage exceeds 3.75x. The amendment requires the company to use month-end cash in excess of $140 million to pay outstanding revolver debt and restricts the company from drawing on the revolver if it has more than $140 million of cash on hand. The revolver was undrawn as of Feb. 1.
Under the amendment, the leverage covenant was reset at 4x for the fourth quarter of 2018, compared with 3.75x previously. It increases to 4.25x for the first quarter of 2019, versus 3.5x, and to 4.5x for the second quarter of 2019, versus 3.5x.
Debt Load
MoneyGram reported $901 million of net debt and $145.5 million of cash as of Dec. 31, 2018, compared with $902.8 million of net debt and $208.8 million of cash at the end of the third quarter. Net leverage stood at 3.66x as of Dec. 31, compared with 3.29x at year-end 2017.
Angelilli said in November that the company expects to have sufficient liquidity to maintain a normal level of working capital of about $120 million. As of Dec. 31, total liquidity stood at $231.3 million.
Fourth-quarter adjusted FCF fell 18% year over year to $21.1 million, while full-year 2018 FCF edged down 4% year over year to $101 million, due to the impact of de-risking on revenue offset by reductions in capital expenditure.
Consumer Fraud
The company reached an agreement with the U.S. Department of Justice and the Federal Trade Commission in November 2018 to pay $125 million to victims of consumer fraud, with $70 million to be paid to the government in the fourth quarter of 2018 and $55 million by May 2020. Angelilli said on the third-quarter earnings call in November that the company could focus on refinancing both the revolver and the term loan in light of agreement, which extends the deferred prosecution agreement, or DPA, for 30 months from November 2018.
Failed Sale
Alibaba Group’s Ant Financial dropped its $1.2 billion bid for MoneyGram in January 2018 after the Committee on Foreign Investment in the U.S. refused to approve the deal. A number of factors contributed to the deal being scrapped, including concerns of Chinese access to big data and personal information and higher levels of scrutiny of Chinese acquisitions under the Trump administration, according to Reorg M&A.
Ant Financial sweetened its offer in April 2017 to $18 per share compared with the original $13.25 valuation three months earlier, after Euronet Worldwide submitted an unsolicited competing bid in March 2017 for $15.20 per share.
The company incurred $2 million in costs connected to the terminated merger, according to its fourth-quarter 2017 earnings.
MoneyGram did not respond to requests for comment.
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