MNC Financial Inc., the parent company of Maryland National Bank, announced that it might spin off its giant credit-card subsidiary, MBNA America, as a publicly traded company if it can not find a buyer.
Such an offering could bring MNC as much as $1.13 billion, according to the estimated price of $25 a share that was part of the company's filing with the Securities and Exchange Commission. However, the stock price could change before the actual offering.
The filing was intended "to expand MNC's options with respect to the disposition of MBNA America," said a company press release issued yesterday. "The offering will not proceed if MNC Financial reaches an agreement for the sale of MBNA America," the release said.
In a registration filing with the SEC yesterday, MNC proposed an initial public offering of 45 million shares in MBNA Corp., a company created to take over the operations of MBNA America.
MNC announced Oct. 25 that it wanted to sell its profitable credit-card division as a way of improving its sagging capital condition. MBNA America, with $6.2 billion in credit-card receivables, is considered one of the top credit-card operations in the country.
MNC made the announcement when it reported a third-quarter loss of $173 million, or $2.05 a share, as the result of the bank holding company putting $350 million into its reserves for possible loan losses.
The credit-card subsidiary, based in Newark, Del., has carved out a high-income clientele by primarily offering cards to to professional, fraternal, educational and special interest associations.
MNC chairman and chief executive officer Alfred Lerner said in October that the company hoped to sell MBNA by the end of the year.
However, other banks that might be interested in buying are also strapped for cash and some are selling their credit-card operations to raise capital.
A recent article in American Banker, a daily banking newspaper, said General Electric Co., which has a large credit-card operation, may be interested in acquiring MBNA.
Virginia Steinberg, a spokeswoman for GE, declined to comment on the MNC stock proposal. "It wouldn't be appropriate for us to comment on something like tha," she said.
In another action, MNC said it has received an extension until Friday to meet liquidity requirements under its $750 million line of credit from a bank syndicate led by Morgan Guaranty Trust Co.
Under a Sept. 28 agreement, MNC was supposed to have additional cumulative liquidity of $300 million as of yesterday. Liquidity is the amount of cash and marketable securities that are available to a company. The agreement with Morgan Guaranty called for the additional liquidity to reach $575 million by Jan. 5 and $650 million by Jan. 26.
"Pursuant to the original terms, the line becomes payable immediately on the respective dates if the corporation [MNC] is unable to obtain the additional liquidity requirement," according to MNC's third quarter report to shareholders.
David S. Penn, a banking analyst for Legg Mason Wood Walker, the Baltimore stock brokerage firm, said MNC's failure to meet the requirement should not cause too much concern.
"It certainly is not good news, but it's not news that should surprise the market," he said. "It was a foregone conclusion when the agreement was concluded that they [MNC] were not going to meet the requirement,".
Even with this knowledge, he said, Morgan probably made the agreement to show its support of MNC and to get a chance at more favorable fees in the renegotiations, Penn said.
Today MNC stock was trading at $4, down 25 cents as of 1 p.m. The stock fell 87 1/2 cents yesterday.
The sale of MBNA America would raise MNC's liquidity to the required levels.
The proposed stock offering is in two parts, with 36 million shares of common stock to be offered in the United States and 9 million shares to be offered at the same time outside of the United States.
Goldman, Sachs & Co., the New York investment banking firm, would be the lead underwriter in the United States, and Goldman Sachs International Limited would lead the international offering.
The underwriters have been given an option for 30 days to purchase up to an additional 6.75 million shares. MNC Financial has asked that the underwriters offer shares to MNC Financial shareholders.