MoneyGram 2007 Annual Report Download - page 5

Table of Contents
deterioration under increasing concerns over defaults on mortgages and debt in general, as well as an increasingly negative view towards
all structured investments and the credit market. In addition, the rating agencies continued their review of securities, issuing broad rating
downgrades based on high levels of assumed future defaults. Under the terms of certain of our asset-backed securities, ratings
downgrades of collateral securities can reduce the cash flows to all but the most senior investors even if there have been no actual losses
incurred by the collateral securities. In December 2007, we began to experience adverse changes to the cash flows from some of our
asset-backed investments as a result of the accumulating rating downgrades of the underlying collateral securities. As the market
continued its substantial deterioration, we identified a need for additional capital. Through meetings with potential investors in late
December 2007 and early January 2008, it became evident that we would need to divest certain investments in connection with any
recapitalization to significantly reduce the risk of any further deterioration in the investment portfolio. We commenced a plan in January
2008 to realign our investment portfolio away from asset-backed securities and into highly liquid assets through the sale of a substantial
portion of our investment portfolio. As a result of these developments, we recognized $1.2 billion of other-than-temporary impairments
as a charge to earnings in December 2007.
On March 25, 2008, we completed a recapitalization transaction pursuant to which we received a substantial infusion of both equity and
debt capital (the "Capital Transaction") to support the long-term needs of the business and to provide necessary capital due to the
investment portfolio losses. The equity component of the Capital Transaction consisted of the sale to affiliates of Thomas H. Lee
Partners, L.P. ("THL") and affiliates of Goldman, Sachs & Co. ("Goldman Sachs" and together with THL, the "Investors") in a private
placement of 760,000 shares of Series B Participating Convertible Preferred Stock of the Company (the "Series B Preferred Stock") and
shares of Series B-1 Participating Convertible Preferred Stock of the Company (the "Series B-1 Preferred Stock," and together the
"Series B Stock") for an aggregate purchase price of $760.0 million. The issuance of the Series B Stock gave THL and Goldman Sachs an
initial equity interest of approximately 79%. Furthermore, in connection with the Capital Transaction, we paid Goldman Sachs an
investment banking advisory fee equal to $7.5 million in the form of 7,500 shares of Series B-1 Preferred Stock. For a description of the
terms of the Series B Stock, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity
and Capital Resources — Sale of Investments and Capital Transaction" and Note 18 — Subsequent Events of the Notes to Consolidated
Financial Statements.
As part of the Capital Transaction, we amended our Rights Agreement with Wells Fargo Bank, N.A., as rights agent, to exempt the
issuance of the Series B Stock and stock into which the Series B Stock is convertible from the Rights Agreement. We also entered into a
Registration Rights Agreement with the Investors which requires us to promptly file a shelf registration statement with the SEC relating
to the Series B Stock issued to the Investors after a specified holding period. We are generally obligated to keep the shelf registration
statement effective for up to 15 years or, if earlier, until all the securities owned by the Investors have been sold. The Investors are also
entitled to five demand registrations and unlimited piggyback registrations.
As part of the Capital Transaction, MoneyGram Payment Systems Worldwide, Inc. ("Worldwide"), a wholly owned subsidiary of the
Company, issued Goldman Sachs $500.0 million of senior secured second lien notes (the "Notes") with a ten year maturity. For a
description of the terms of the Notes, see "Management's Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — Sale of Investments and Capital Transaction" and Note 18 — Subsequent Events of the Notes to
Consolidated Financial Statements. Additionally, Worldwide, as borrower, and the Company entered into a senior secured amended and
restated credit agreement amending the Company's existing $350.0 million debt facility, adding $250.0 million of term loans to bring the
total facility to $600.0 million. The new facility includes $350.0 million in two term loan tranches and a $250.0 million revolving credit
facility. For a description of the terms of the amended and restated credit facility, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and Capital Resources — Sale of Investments and Capital Transaction" and
Note 18 — Subsequent Events of the Notes to Consolidated Financial Statements.
For additional information regarding our business, including our financial results, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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