MoneyGram Eliminates Debt

Taking its debt reduction initiative one step ahead, on Wednesday MoneyGram International Inc. (MGI) announced an optional prepayment of $30 million against its tranche B term loan under its senior secured credit facility.

MoneyGram reduced its loan by 3% by repaying a significant part of it yesterday, thereby lowering its total outstanding debt by 28% to $277 million ever since January 2009.

MoneyGram has been continuously making steady attempts to discard its debt under the senior secured credit facility. As a result, the company repaid $187 million in its tranche B term loan in 2009. In 2010, MoneyGram made an optional prepayment of $30 million, each in April and June 2010, and the latest one being the third consecutive quarterly payment in this year.

Earnings Recap

MoneyGram reported second quarter loss per share of 31 cents, modestly ahead of the Zacks Consensus Estimate of a loss of 28 cents but substantially lower than the loss of 40 cents reported in the year-ago quarter.

Total expenses decreased 10.7% to $154.1 million against $172.7 million in the year-ago quarter. Higher money transfer transaction volumes and decreased operating expenses were offset by a drop in the top line due to lower revenue per transaction and continued weakness in Mexico and Spain.

MoneyGram ended the second quarter with $746.3 million in outstanding debt and assets in excess of payment service obligations of $284.1 million. While elimination of debt will help in accentuating the company’s operating and capital leverage, it will also emanate ample opportunities for the business reconstruction. The company has been meticulously taking up cost containment measures to help boost its operating efficiencies that can ultimately help the bottom line swing back to profits.

As a result, during the second quarter of 2010, MoneyGram executed the first phase of its global initiative program in order to streamline its operations to increase efficiency and promote a scalable cost structure. The company recorded $1.9 million of costs in the first phase. Based on initial projections, MoneyGram anticipates to incur $45-$50 million of cash outlays in future phases to generate annual pre-tax cost savings of $25-$30 million, once this program is fully implemented in 2012.

Besides, the company also announced the shift of its global headquarters to Dallas from Minneapolis, last week, which is believed to be one of the cost containment measures among others.

Overall, though the current economic turmoil has weakened both the revenue growth and the operating leverage of MoneyGram, we believe that the company has the potential to overcome the impact of the volatile U.S. dollar against other currencies and additional losses in its investment portfolio, once the global economy rebounds to its historical highs.

MONEYGRAM INTL (MGI): Free Stock Analysis Report

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