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Rating Action:

Moody's affirms MoneyGram's B3 CFR and upgrades liquidity rating to SGL-3; outlook remains negative

07 Aug 2019

New York, August 07, 2019 -- Moody's Investors Service (Moody's) affirmed MoneyGram International, Inc.'s (MoneyGram) Corporate Family Rating (CFR) of B3. The Speculative Grade Liquidity Rating (SGL) was upgraded to SGL-3 from SGL-4. The outlook remains negative.

The upgrade of the SGL rating follows the completion of the debt capital structure refinancing in June 2019 which extended debt maturities. Liquidity is supported by available cash balances of $134 million as of June 2019, but constrained by the pending $55 million forfeiture payment due May 2020 and by the approximately breakeven free cash flow pro forma for the higher cash interest expense levels following the refinancing.

RATINGS RATIONALE

The B3 CFR reflects MoneyGram's elevated business risk profile, with continuing revenue pressures due in part to efforts to strengthen the compliance framework resulting from the deferred prosecution agreement (DPA) with the Department of Justice, as well as the intense competitive environment in the money transfer industry. While MoneyGram's revised compliance standards have resulted in an improved compliance risk profile, they have also had the effect of reducing volumes in certain corridors. Moody's expects declines in revenue and margins in 2019 to result in adjusted leverage increasing to about 5.4x by the year-end. The refinancing of the debt capital structure extended maturities and added a junior debt capital tranche, but strained free cash flow generation through meaningfully higher cash interest expense. Moody's projects MoneyGram's free cash flow to be approximately breakeven over the next 12 to 18 months. The second forfeiture payment of $55 million mandated by the DOJ settlement is due in May 2020 and reduces available liquidity.

MoneyGram's credit profile is supported by its leading position in the global money transfer industry and the value of its broad global network. Consumer demand fundamentals in the money transfer market are solid, with the addressable market of over $700 billion of annual cross-border remittances in 2019 projected by the World Bank to grow in the low single digits over the coming years. MoneyGram has made investments in its digital capabilities and global presence, and has been able to drive growth in its digital revenues in recent periods. The company has undertaken proactive measures to control expenses and realize operating efficiencies, including an evolving collaboration with Ripple Labs, Inc. (Ripple) to streamline cross-border funds movement. Liquidity is adequate with cash balances of $134 million as of June 30, 2019 and access to a $35 million revolver maturing in 2022.

The negative rating outlook is predicated upon further top line decline and breakeven free cash flow pro forma for the refinancing. The outlook could be changed to stable if revenue and EBITDA generation stabilizes and free cash flow is consistently positive.

The ratings could be upgraded if MoneyGram demonstrates sustained revenue and EBITDA growth, reduces leverage to below 4.5x and increases free cash flow to debt to above 5%. The ratings could be downgraded if MoneyGram's EBITDA decline does not moderate, if free cash flow is consistently negative, or if liquidity weakens.

The B2 ratings assigned to the first lien senior secured credit facilities are one notch above the B3 CFR reflecting their senior most position in the capital structure and size relative to the second lien debt. The Caa2 rating on the second lien secured term loan, two notches below the B3 Corporate Family Rating, reflects the significant amount of first lien debt ahead of it in the capital structure.

The following rating actions were taken:

Upgrades:

..Issuer: MoneyGram International, Inc.

....Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4

Affirmations:

..Issuer: MoneyGram International, Inc.

.... Corporate Family Rating, Affirmed B3

.... Probability of Default Rating, Affirmed B3-PD

....Senior Secured 1st Lien Revolving Credit Facility, Affirmed B2 (LGD3)

....Senior Secured 1st Lien Term Loan, Affirmed B2 (LGD3)

....Senior Secured 2nd Lien Term Loan, Affirmed Caa2 (LGD5)

Outlook Actions:

..Issuer: MoneyGram International, Inc.

....Outlook, Remains Negative

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

With revenues of $1.3 billion for the trailing twelve months period ended June 2019, MoneyGram is a leading global provider of consumer money transfer services.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Serge Krukovsky
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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