Fitch Affirms MoneyGram's IDR at 'B+'; Outlook Negative

NEW DELHI & SYDNEY & SINGAPORE--(Business Wire)--
Fitch Ratings has affirmed the Issuer Default Ratings (IDR) for MoneyGram
International Inc. (MoneyGram) and MoneyGram Payment Systems Worldwide, Inc.
(Worldwide) at 'B+'.

Fitch has also upgraded the following ratings for Worldwide:

--Senior secured first lien credit facility to 'BB+/RR1' from 'BB / RR2'; and

--Senior secured second lien notes to 'B+/RR4' from 'B/RR5'.

The Rating Outlook is Negative.

The Negative Outlook reflects:

--Expectations for continued global economic weakness negatively affecting
remittance volumes which could reduce EBITDA to levels inconsistent with the
company's financial covenants which limit senior secured leverage to 6.5 times
(x) through September 2009 and 6.0x through September 2010, and an implied
minimum EBITDA level of approximately $150 million and $160 million,
respectively;

--A further potential negative impact on profitability, although modest, as
investment returns from the company's remaining asset backed securities decline
as loan defaults increase as expected. Fitch estimates that MoneyGram still
generates approximately one-third of its EBITDA from investment revenue.

The upgrade of the senior secured first-lien and senior secured second-lien
ratings reflects improved recovery expectations stemming from lower assumed
funding gap needs to satisfy MoneyGram's payment service obligations in a stress
event, which itself is a reflection of reduced risk in the company's restricted
asset basket.

Although the Outlook remains negative due primarily to the macroeconomic
environment, Fitch notes that since MoneyGram's recapitalization in early 2008,
the company has demonstrated stabilized profitability in both the Payment
Systems (PS) and Global Funds Transfer (GFT) businesses while significantly
reducing exposure to risky assets in its investment portfolio, which has
produced minimal realized and unrealized losses over the past two quarters.

MoneyGram's ratings reflect the following considerations:

--Continued limited financial flexibility given a relative high degree of
leverage (total debt with equity credit to operating EBITDA) which Fitch
estimates at 6.7x (7.3x when adjusted for operating leases), and cash interest
coverage of 1.8x;

--Flat- to-declining revenue in 2009 (relative to pro forma 2008 results) as
overall remittance transaction volumes are expected to decline due to the global
economic slowdown, partially offset by a continued increase in market share;

--EBITDA in 2009 of at least $200 million (excluding potential investment gains
or losses) with modest contribution expected from the PS segment;

--Positive free cash flow in 2009, although likely limited to under $100 million
due to significant cash interest expense relative to EBITDA;

--No expected near-term reduction in debt with EBITDA growth necessary for
incremental de-leveraging;

--MoneyGram will continue to limit risk in its investment portfolio consistent
with covenants which currently restrict new investments to cash, cash
equivalents and securities issued by U.S. government agencies with a maturity of
13 months or less.

MoneyGram's investments under available for sale securities have been reduced to
$439 million as of Dec. 31, 2008 from $4.2 billion as of Dec. 31, 2007 largely
through the sale of a majority of the portfolio in the first quarter of 2008
(end March). Of the $439 million remaining, $392 million is held in residential
mortgage backed securities consisting entirely of government agency securities;
$30 million is held in other asset backed securities with a book value marked
down to less than 5% of face value; and $17 million of other U.S. government
agency securities. These investments, while outside the current covenant
restriction on new investments, are legacy positions and can be held to
maturity.

Credit strengths include the solid market position of MoneyGram as the second
largest global provider of international money transfers as well as Fitch's
expectation for the long-term growth and stability of the money transfer
industry. In addition, the remittance model has a largely variable cost
structure which should help MoneyGram sustain its profit levels during the
economic downturn.

Rating concerns include:

--MoneyGram's ability to renew existing and attract new agent relationships
given its highly levered balance sheet;

--a significant reliance on WalMart as a remittance agent, with WalMart
accounting for 30% of GFT revenue in 2008;

--the company's ability to invest in new remittance technologies, such as mobile
phone payments, which pose a long-term competitive threat.

The ratings could be stabilized by flat-to-positive revenue and EBITDA results
in both the GFT and PS segments. Conversely, the ratings could be negatively
affected by additional investment portfolio losses or greater assumed risk in
investment mix. The loss of significant market share in the remittance market,
principally through the loss of significant agent relationships, could also
negatively affect the ratings.

Revenue adjusted to exclude securities gains and losses during 2008 was $1.3
billion with EBITDA of $173 million (13.6%). The GFT segment contributed $1.1
billion of revenue during 2008, excluding net investment losses, and EBITDA of
$194 million (17.7%). The PS segment contributed $175 million in revenue and $13
million in EBITDA (7.3%). Segment EBITDA is offset by roughly $34 million in
general corporate expenses. By comparison, in 2006, the last year unaffected by
significant investment losses, revenue was $1.2 billion with EBITDA of $227
million (19.5%). GFT contributed $822 million in revenue with EBITDA of $187
million (22.8%). PS contributed $339 million in revenue with EBITDA of $46
million (13.6%). Note that GFT profitability is also negatively affected by the
more conservative investment policy, as MoneyGram historically achieved a
significant profit by investing the float associated with its retail money order
product. Investment revenue for this product declined from $89 million in 2007
to $24 million in 2008, excluding investment losses.

MoneyGram accounts for its entire cash balance as restricted due to the
regulatory requirements of its PS business. As a result, traditional cash flow
calculations do not yield meaningful results. Fitch estimates free cash flow
from changes in the calculation of unrestricted assets (restricted cash plus
receivables plus investments less payment service obligations) adjusted for
items such as capital spending and net debt or equity proceeds. From this, Fitch
estimates MoneyGram generated approximately $45 million in free cash flow during
the second half of 2008, or $90 million on an annualized basis. This compares
favorably with 2006 estimated free cash flow of $43 million although capital
investments have declined from $81 million in 2006 to $38 million in 2008.

Fitch estimates MoneyGram's total adjusted debt with equity credit as of Dec.
31, 2008 to be $1.2 billion and includes $145 million outstanding under the
company's $250 million secured revolving credit facility which matures in March
2013; $350 million outstanding under secured term loans included in the
revolving credit facility which also mature in March 2013; $500 million of
13.25% senior secured second lien notes which mature in March 2018; and $742
million in 10% series B preferred shares to which Fitch assigns 75% equity
credit due to the strong-equity like characteristics of this particular
instrument including its convertible and deferred interest features. All debt is
currently issued out of Worldwide, which is a wholly owned subsidiary of
MoneyGram.

Fitch estimates liquidity to be adequate and includes approximately $100 million
available under the company's revolving credit facility and $391 million in
unrestricted assets. MoneyGram historically has categorized its entire cash
balance as substantially restricted due to the liquidity requirements of its PS
business.

The Recovery Ratings (RRs) for MoneyGram reflect Fitch's recovery expectations
under a distressed scenario, as well as Fitch's expectation that the enterprise
value of MoneyGram, and hence recovery rates for its creditors, will be
maximized in a restructuring scenario (as a going concern) rather than a
liquidation scenario. In deriving a distressed enterprise value, Fitch estimates
a distressed EBITDA value of $150 million, representing a 13% discount to
MoneyGram's estimated pro forma operating EBITDA of approximately $172 million,
which is roughly equivalent to the level of EBITDA necessary for MoneyGram to
satisfy its maximum senior secured leverage ratio covenant of 6.5x. Fitch then
applies a 6x distressed EBITDA multiple, which considers comparable current and
historical market multiples, as well as the assumption that a stress event would
likely lead to multiple contraction relative to historical levels. As is
standard with Fitch's recovery analysis, the revolver is fully drawn and cash
balances fully depleted to reflect a stress event. Fitch also adjusts
MoneyGram's distressed enterprise value for liquidity requirements to cover any
estimated shortfall in restricted asset coverage for a stress scenario. The
'RR1' for MoneyGram's senior secured first lien bank facility reflects Fitch's
belief that 91%-100% recovery is realistic. The 'RR4' for MoneyGram's senior
secured second lien reflects Fitch's belief that 31%-50% recovery is realistic.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Jason Paraschac, 212-908-0746
Nick P. Nilarp, CFA, 212-908-0649
Melissa L. Link, CFA, 212-908-0611
or
Media Relations:
Cindy Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com

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