In an effort to improve its cash position, MNC Financial Inc. has announced definitive agreements to sell its leasing operation and four industrial banks in Colorado for a total of $300 million.
The announcement comes as MNC, the parent company of Maryland National Bank, is trying to recover from bad real estate loans that were the primary cause of a $241.9 million loss in the first nine months of the year.
MNC faces a deadline today for a new agreement with a bank syndicate headed by Morgan Guaranty Trust Co. on the terms of a $750 million line of credit.
MNC needs the line of credit from Morgan to continue to pay its bills and to meet debt obligations that are coming due soon. Bank analysts expect the terms of the credit line to be renegotiated.
Reflecting MNC's poor financial health, the rating firm of Standard & Poor's Corp. yesterday downgraded MNC's already low credit rating and put it on a credit-watch list with "negative implications." The new ratings, which affect about $1.3 billion in debt, were issued five hours before MNC's sale announcement.
MNC stock today was trading at $3 3/4 , unchanged at midday.
General Electric Capital Corp., a subsidiary of General Electric Co., has agreed to buy substantially all of the assets of the Leasing Division of MNC Credit Corp.
Four industrial banks in Colorado owned by MNC are to be bought by Blazer Financial Corp., a subsidiary of Great Western Financial Corp.
MNC said the sale of the two divisions would raise $300 million, which would be used to pay off debt.
The company declined to break down the sale price of the units. However, the leasing subsidiary, which was created in 1973, is the larger of the two divisions with a reported $300 million in assets.
MNC said it hopes to complete the sale of the leasing operation by the end of the year and the sale of the industrial banks during the first three months of next year.
"The acquisition of MNC's highly regarded leasing operation furthers GE Capital's position as the largest middle-market equipment-financing business in North America and helps position the business to provide an even broader range of services for our customers," said Michael A. Neal, general manager of GE Capital Commercial Equipment Financing.
As MNC is selling its assets, the company is trying to hang onto an important $750 million line of credit from the syndicate headed by Morgan. This line was put into jeopardy when MNC did not meet certain liquidity requirements.
A Morgan official had no comment today, but bank analysts believe the syndicate of banks will renegotiate the agreement.
"In my view, it gives Morgan a chance to strengthen their position by demanding more collateral or higher interest," said David S. Penn, a bank analyst for Legg Mason Wood Walker, the Baltimore stock brokerage firm.
Under the Sept. 28 agreement with Morgan, $600 million of the line of credit was made immediately available to MNC to replace maturing short-term borrowings and commercial paper.
On Monday MNC announced that it had received an extension until today to meet liquidity requirements. Liquidity is the amount of cash and marketable securities that are available to a company.
Under the agreement, MNC was supposed to have additional cumulative liquidity of $300 million as of last Monday. Additional liquidity is supposed 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.
Adding to the company's problems, MNC also has to pay off $170 million in notes on Tuesday.
"People's concerns about MNC's future are understandable given the uncertainties in the situation," said John A. Heffern, a bank analyst for Alex. Brown & Sons Inc., a Baltimore investment banking firm. "But my betting is the Morgan syndicate will ride with them at least for the time being," he said.
As part of its effort to bolster its finances, MNC is trying to sell its profitable credit-card division, MBNA America.
If it does not get a buyer for MBNA, MNC is preparing spin off the unit as a publicly traded company. Such an initial stock offering could bring MNC as much as $1.13 billion, using initial estimates of the stock's price.
In a press release yesterday, S&P said it lowered MNC's rating because of its "heavy concentration in construction and commercial real estate loans, and mounting evidence that the region's real estate markets have continued to deteriorate."
The agency also cited MNC's "stressed liquidity position," which will force it to pay off substantial amounts of company debt over the next five months. To do this, the company must sell several of its assets, S&P said.
"However, with several deadlines rapidly approaching, it is imperative that the company maintain its momentum of quickly selling assets at a time when market conditions are less than favorable," S&P said. "Until these assets are sold and sufficient cash reserves are created at the holding company to meet these maturities, the ratings will remain on credit watch with negative implications."