Tommy Lee, Goldman Sponsor MoneyGram Recap

Thomas H. Lee Partners and Goldman Sachs have sponsored a leveraged recapitalization of MoneyGram International.

Boston’s Thomas H. Lee and GS Capital, the New York private equity arm of Goldman Sachs, will invest $710 million for common and preferred stock in the Minneapolis wire-transfer, bill-payment and money-order arranger. The investors will receive convertible preferred stock paying 20% interest until it is converted, which will equal a 19.9% common stock stake upon conversion.

The investors also have an option to invest an additional $65 million of equity in MoneyGram, which has secured committed senior second lien debt financing of up to $500 million, payable at 13.25% over a 10-year term, from Goldman Sachs. In addition, MoneyGram may secure an additional $200 million of debt, priced up to 625 basis points over Libor as part of the closing condition, prior to the deal’s closing.

Philip Milne, president and chief executive of MoneyGram, said in a statement that the transaction will provide the company with the “necessary additional capital to significantly strengthen its balance sheet.”

Officials from Thomas H. Lee and GS Capital did not return calls.

JPMorgan Securities and Duff & Phelps served as financial advisors to MoneyGram, which announced the deal on Tuesday, and provided a fairness opinion to MoneyGram’s board, which approved the transaction on Monday. JPMorgan Securities also served as placement agent for MoneyGram.

The deal calls for MoneyGram, a $442.9 million market-capitalized company, to sell additional investment portfolio assets. In January, the company announced it had valued its portfolio after assessing $860 million in losses from its investment portfolio, primarily due to losses on asset-backed securities. MoneyGram sold $1.3 billion of securities in January, the same month it disclosed that the company was engaged in discussions with Thomas H. Lee and investors, and by Feb. 11 it had sold $1.8 billion of portfolio securities.

MoneyGram, which has a go-shop period in its agreement with the private equity investors to review other prospective financing proposals, is planning to obtain amendments on $350 million of available borrowings under its existing credit line. In January, it said that its lenders had agreed to waive certain defaults that were related to its portfolio losses.

The company has also secured an existing financial services agreement with Wal-Mart to continue providing bill payment, money transfer and money order services at more than 3,500 stores through January 2013.

MoneyGram’s shares were recently trading at $5.35, little changed from the previous day's close. The company’s stock has traded in a range of $3.68 to $30.85 a share over the past year.

A business with 143,000 locations in 170 countries and territories, MoneyGram disclosed that it paid a hefty $37.5 million in transaction fees to Thomas H. Lee and Goldman Sachs in connection with the recapitalization.