MoneyGram International Inc., whose check processing business lost at least $860 million on subprime investments last year, said Tuesday that it plans to restructure the business.
The Minneapolis money transmitter also said it had entered talks with Thomas H. Lee Partners LP to receive $750 million to $850 million of equity from the Boston investment firm and another $550 million to $750 million of debt financing from other parties. The deal would give Thomas H. Lee 60% to 65% ownership of MoneyGram, but a spokesman said it would not prohibit the company from continuing buyout talks with the electronic funds processor Euronet Worldwide Inc.
(Last month Euronet, which owns the money transmitter Ria Envia Inc., disclosed it had made an unsolicited $1.65 billion bid for MoneyGram. MoneyGram rejected the initial offer, but a Euronet spokeswoman said the Leawood, Kan., company has since signed a confidentiality agreement and held a brief discussion with MoneyGram.)
Under the restructuring, MoneyGram said, the check processing business would drop most of its top 10 clients and about $2 billion of obligations. MoneyGram said the business needs to increase its fees and reduce the commission it pays to bank clients as it realigns its investment portfolio to be more conservative.
The company said the check business would begin investing primarily in government, agency, and municipal securities as it shies away from higher-risk investments like mortgage assets.
Mark Sproule, an analyst with Thomas Weisel Partners LLC in New York, said MoneyGram had previously been "generating a pretty nice yield on the investments" in its check business. But "clearly you are not going to be able to do that when you are trading in Treasuries."
Last month MoneyGram sold $1.3 billion of securities at a loss of $200 million. On Tuesday it said it would liquidate additional assets if partial ownership of the company is transferred to Thomas H. Lee.
Mr. Sproule estimated that MoneyGram could write down more than $1 billion for the fourth quarter as it "for lack of a better word, throws in the kitchen sink" and cleans out the rest of the "downward liability" in its check payments business.
MoneyGram has not set a release date for fourth-quarter results.
The company continues to experience strong growth in its money transfer business, where Mr. Sproule said it should focus. "If we get to a position where we are not talking about the payments business and just money transfer, this company will do much better," he said. But "in the short run, it's not a very comfortable situation."
A deal with Thomas H. Lee could be signed as early as this month and result in funding for MoneyGram by February, the company said. Additionally, MoneyGram said it expects to get a $350 million line of credit from JPMorgan Chase & Co.
