Message from MoneyGram

The company won’t comment on the litigation or the SEC inquiry. But the odds that it can navigate through its legal problems clearly have risen, given that it now has the deep pockets of Lee and Goldman behind it.

MoneyGram’s roots go back to 1940, when Travelers Express started up as a money order company in Minneapolis. Later, Travelers Express became part of Arizona-based Viad Corporation, a marketing, travel, and recreation company. In 2004, Viad spun it off to establish MoneyGram as a publicly held entity.

MoneyGram employs roughly 950 people in the Twin Cities area. About 550 of them work at the company’s headquarters in the nine-story MoneyGram Tower overlooking the I-394/Highway 100 interchange. Another 400 or so work at its operations center in Brooklyn Center. About 800 are in Denver and 700 more at sites scattered around the world. The company has two divisions: global funds transfer and payment systems. The global funds transfer division has been by far the largest and fastest growing. In 2006, it accounted for $822 million or 71 percent of the company’s revenue, and $153 million or 86 percent of its operating income. Revenues from the global funds transfer division doubled from 2002 to 2006. MoneyGram’s stock reflected this growth, significantly outperforming its peers.

Trouble Surfaces

But last October, the company disclosed a $230 million loss on mortgage-related investments. In mid-January, MoneyGram said losses, mostly on these securities, had ballooned to $860 million, and that Lee was weighing a recapitalization that would give it control of the company.

Four weeks later, MoneyGram announced a deal that would give the Lee-Goldman group a 63 percent stake in the company for preferred stock convertible into common stock at a price of $5 a share.

MoneyGram sweetened its terms late in March, then closed an agreement that boosted Lee’s stake to 79 percent and cut the price of the convertible preferred shares to $2.50. The deal straightens out the company’s balance sheet by getting rid of its bad debt and providing new debt financing. But the cleansing didn’t come cheaply. The preferred shares will pay cash dividends of 10 percent or, if the company can’t pay them, accrue dividends of up to 15 percent. In March, the company reported a net loss from continuing operations of $1.07 billion for 2007, caused by a loss on securities of $1.2 billion.