Thanks to a last-minute sale of assets, MNC Financial Inc. temporarily skirted its own sort of credit crunch yesterday as the giant banking company paid off investors holding $170 million in debt and extended its line of credit with a syndicate of lenders.
The completion of the two deals averted defaults on both the notes and the credit facility, which could have forced MNC to immediately repay the entire $550 million owed to a group of banks led by Morgan Guaranty Trust Co.
MNC, parent of Maryland National Bank and American Security Bank in Washington, said it paid some of its outstanding debt with the $275 million it received from the 11th-hour completion of the sale of its equipment-leasing division to General Electric Capital Corp. The asset sale, announced Thursday evening, closed late Monday night.
The company said $175 million was used to pay off part of the bank borrowings and that $100 million went to noteholders to pay the debt that came due yesterday. MNC used "other resources" to pay the remaining $70 million in debt, said MNC spokesman Daniel G. Finney.
The amendment to the credit facility came after a previous extension ended Friday without MNC fulfilling the conditions of the agreement.
"This buys some time, and we were getting precious short of that, it seemed," said Anthony R. Davis, a banking analyst at Wheat First Securities.
Yesterday's news was not all good, however.
"This was sort of the best-news conclusion to the story near term," said David S. Penn, banking analyst at Legg Mason Inc. "Now, the whole drama just starts over again."
In agreeing to extend the credit facility, the Morgan Guaranty group also revised its terms, terminating what had been an open-ended line of credit that eventually would grow to $750 million, MNC said.
Under the revised terms of the agreement, the credit facility effectively ends Jan. 14, when the remaining $375 million borrowed from the bank syndicate must be repaid. MNC stock, traded on the New York Stock Exchange, closed up 25 cents share at $3.625 a share.
Although greeted with a sigh of relief by analysts, MNC's statement added a greater sense of urgency to its goal of selling additional divisions.
Jan. 15, the day following MNC's deadline for paying its bank lenders $375 million, the company also must buy back $271 million in debt that is outstanding. An additional $275 million in debt is due Feb. 5.