BANGALORE MoneyGram International MGI.N said affiliates of private equity firm Thomas H. Lee Partners (THL) will own 55 percent of the payment services company following a recapitalisation deal, sending its shares up by nearly a fifth to a 10-month high.
MoneyGram, which competes with Western Union Co (WU.N), has been seeing a recovery in its performance after the remittance industry struggled during the credit crunch.
In 2008, an investment group led by THL and Goldman Sachs (GS.N) acquired an equity interest of 63 percent in MoneyGram for about $710 million.
Under the recapitalisation, THL and its co-investors will convert all their Series B Preferred shares into common stock, and Goldman will convert its Series B-1 preferred shares into Series D participating convertible preferred stock, a non-voting equivalent to common stock.
"This will be on a run-rate basis positive on the bottom line in that it eliminates the PIK on the preferred stock," Moneygram CEO Pamela Patsley told Reuters, referring to dividend payments required by the preferred stock terms.
The recapitalisation provides that THL and its co-investors will get about 28.2 million additional common shares and $140.8 million in cash. Goldman will receive 15,504 additional shares of Series D Preferred, equal to 15.5 million common shares, and $77.5 million in cash.
Following the transactions, THL and its co-investors will have about 314.6 million common shares, representing 55.1 percent of the outstanding common stock on a fully diluted basis.
Goldman Sachs is expected to have 173,190 shares of Series D Preferred, which are convertible by holders other than Goldman and its affiliates, into 173.2 million common shares, representing about 30.3 percent of common stock after the transaction on a fully diluted basis.
"This transaction simplifies our capital structure, ends the dilution from the continuing dividend payments required by the preferred stock terms, and increases the attractiveness of our common stock," Patsley said in a statement.
Under the 2008 agreement, MoneyGram also received $500 million in debt financing from Goldman Sachs.
MoneyGram, which has about 227,000 global money transfer agent locations in 191 countries and territories, is also working to obtain a new senior secured credit facility for the partial funding of the recapitalization.
The new credit facility would comprise a revolver and a term loan, which would refinance its existing senior secured credit facility.
"While debt is actually increased a little bit initially, we will continue to pay down debt aggressively and will have more favorable terms on our new bank debt," Patsley said.
Shares of MoneyGram, which recently moved its base to Dallas, Texas, were up 15 percent at $3.08 on Tuesday on the New York Stock Exchange, in more than 10 times their normal trading volume.
(Reporting by Brenton Cordeiro in Bangalore; Editing by Gopakumar Warrier and Ian Geoghegan)