MoneyGram 2007 Annual Report Download - page 47

Table of Contents
Impact on Contractual and Regulatory Capital — The shortfall in unrestricted assets of $551.8 million was the direct result of the market
developments in late November and December 2007, causing us to be out of compliance with the Total Company Ratio. As of
December 31, 2007, our regulated subsidiary MPSI was in compliance with state regulatory requirements, with the exception of one state
where MPSI was out of compliance with the tangible net worth requirement. Subsequent to December 31, 2007, we were out of
compliance with certain other state regulatory requirements, including minimum net worth requirements. We have not received notice of
any enforcement actions contemplated by the regulators, but the regulators reserve the right to take action in the future and could impose
fines and penalties related to the compliance failure. With the completion of the Capital Transaction, as of March 25, 2008, we are in
compliance with all regulatory requirements for all states.
We received waivers of default through May 1, 2008 from both the clearing bank and credit agreement lenders through amendments to
their respective agreements. These waivers were superceded by amendments to these agreements made in conjunction with the Capital
Transaction.
Impact on Liquidity — The declines in the investment portfolio through December 31, 2007 created a need for regulatory and contractual
capital, but did not immediately impact our liquidity. Although we had a shortfall in our unrestricted assets, daily operating and short-
term liquidity needs were not affected due to the nature of our business whereby daily remittances to us are used to pay the daily clearings
of our instruments. In addition, approximately $800.0 million of our PSO at December 31, 2007 are greater than one year old. We have
continued to meet our daily operating and short-term liquidity needs and believe that we will continue to do so with the completion of the
Capital Transaction.
We have agreed with certain of our clearing banks to make funding changes, including providing additional intra-day funding, due to
concerns over the impact of the market disruption on the Company. Additionally, we have revised the funding arrangements with a few
agents, including changes to their remittance patterns, pre-funding by the Company and, in one case, creating a trust for the benefit of the
agent's consumers. These changes have altered our total liquidity needs and changed the timing of cash inflows and outflows. While we
believe the Capital Transaction will restore more ordinary funding protocols with the clearing banks, it is possible that clearing banks will
require advance funding or other security, or even terminate their relationships with us. We believe the requests for amendments to agent
agreements will decrease as a result of the Capital Transaction.
Downgrade of Debt Rating — In January 2008, Moody's Investor Service ("Moody's"), Standard & Poors ("S&P") and Fitch Ratings
("Fitch") downgraded our senior unsecured debt rating to non-investment grade at Ba1, BB and BB-, respectively. In March 2008, S&P
downgraded our senior unsecured debt rating to B+. Moody's, S&P and Fitch have also placed us on watch for potential additional
downgrades. The three major credit rating agencies have cited, among other factors, the reduction in our unrestricted assets caused by our
net unrealized losses and other-than-temporary impairments as the rationale for these downgrades, despite the growth and profitability of
our core money transfer business. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision at
any time and each rating should be evaluated independently of any other rating. It is possible that one or more rating agencies will in the
future downgrade our debt rating further, and that further downgrades could increase our cost of borrowing. It is important to note that
state and federal regulatory authorities do not consider such ratings as criteria in determining licensing or regulatory compliance.
Accordingly any change in debt ratings is not expected to directly affect our regulatory status as a money services business. The financial
impact of any downgrade in our debt ratings will depend on the actual ratings, whether the ratings are split between investment and non-
investment grade and which agency takes this action. It is also possible that ratings downgrades could affect our ability to attract and
retain customers.
Sale of Investments and Capital Transaction
Subsequent to December 31, 2007, we sold substantially all of our investment portfolio for a realized loss of $260.6 million. This realized
loss is incremental to the $1.2 billion other-than-temporary impairment charge we recognized in December 2007. On March 25, 2008, we
completed the Capital Transaction, pursuant to which we received an infusion of $1.5 billion of both equity and debt capital to support
the long-term needs of the business and provide necessary capital due to the investment portfolio losses. The terms of the Capital
Transaction are set forth
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