By Aaron Weinman and Michelle Sierra
NEW YORK, June 7 (LPC) - Money transfer company MoneyGram International Inc is struggling to finalize a US$663m loan as its financial performance wilts under fierce competition following a US$125m US government fine last November for poor money-laundering controls, sources said.
MoneyGram, the second largest provider of money transfers in the world, is raising the four-year term loan B to amend an existing facility and extend the maturity of its debt to 2023 from 2020.
The amendment and extension of the company's original loan, an US$850m facility, was seen as an attempt to avert potential liquidity issues and buy MoneyGram time to restructure its operations or put itself up for sale, a banker said.
The company raised US$850m in seven-year term loan debt in March 2013. The covenant-lite first-lien facility was priced at 325bp over Libor with a 1% floor.
Bank of America Merrill Lynch and Wells Fargo are leading the new transaction, which was launched on May 14, on the same day that Moody’s Investors Service downgraded MoneyGram to B3 from B2.
MoneyGram is under intense pressure from more profitable rivals such as Western Union and Global Payments Inc, as established payment services firms battle competition from tech startups such as Venmo and TransferWise, two investors familiar with the transaction said.
Moody’s also changed MoneyGram’s outlook to negative on May 14, saying the higher cash interest costs from the proposed new loan facilities would lead to “just breakeven to modestly positive” free cash flow over the next 12 to 18 months.
MoneyGram paid a US$125m fine to the US Department of Justice (DOJ) in November 2018 after breaching a settlement that required it to improve its anti-money laundering (AML) controls.
The fine followed findings by the US DOJ that the company had ‘significant weaknesses’ in its anti-fraud and AML program and failed to block fraudulent transactions in 2015 and 2016, despite settling charges in 2012 that it had failed to maintain effective checks on money laundering.
“Every bank has had its own issues with money laundering. Lending to a company that does wire transfers could be difficult for our credit committees,” the banker said.
The company is listed on the NASDAQ Stock Exchange and is currently 51% owned by Thomas H. Lee Partners and Goldman Sachs.
MoneyGram, BAML and Wells Fargo did not respond to requests for comment.
The US$663m loan was launched to investors in mid-May and sought commitments by the Memorial Day holiday in the US on May 27, but investors pushed back on the deal, two sources said.
MoneyGram was forced to increase the term loan’s interest margin to 600bp over Libor from 550bp on May 28 and the original issue discount was also widened to 98.5 cents on the dollar from 99 cents.
Despite the changes, the loan is still in the market, two sources familiar with the transaction said.
Investors remain concerned about a range of issues, including the company’s financial performance, competitive position and potential exposure to money laundering, despite improvements to MoneyGram’s compliance system.
MoneyGram’s December year-end revenue for 2018 fell to approximately US$1.45bn from US$1.6bn a year earlier and dipped to US$1.38bn for the last 12 months ending in March 2019, according to a June 6 report from Moody’s. Debt to Ebitda levels also crept up to 4.7 times for the financial year-end of 2018 from 4.1 times in December 2017.
Rival Western Union, however, has kept its debt to Ebitda ratio at 3.0 times for the last two financial years while revenues increased to roughly US$5.6bn in December 2018 from US$5.52bn the year previously.
MoneyGram also raised a US$245m senior secured second-lien loan via BAML, which is expected to prepay US$245m of its existing first-lien term loan, according to a May 8 filing with the US Securities and Exchange Commission.
The second-lien loan is conditional on MoneyGram refinancing or extending the maturity of its existing revolving credit and first-lien term loan. (Reporting by Aaron Weinman and Michelle Sierra. Editing by Tessa Walsh and Jon Methven)