MNC sells credit-card division Public offering raises more than $1 billion

January 23, 1991|By Peter H. Frank

MNC Financial Inc. completed the sale of its giant credit-card division to the public yesterday, raising the funds needed to pay hundreds of millions of dollars in debt over the next few months and complete a complex financing plan outlined last week.

The sale of MBNA Corp., a highly profitable credit-card company based in Newark, Del., raised more than $1 billion as 45 million newly issued shares were sold by MNC and MBNA for $22.50 each.

MNC, parent of Maryland National Bank and American Security Bank, was to collect about $730 million, and MBNA was to keep about $225 million when proceeds from the sale change hands Tuesday.

The successful sale of MBNA's stock was considered a linchpin in MNC's short-term operating plan. With $546 million in debt coming due in two weeks, the troubled banking company had pinned much of its financial future on the sale of its most-prized subsidiary.

MBNA, the fourth-largest issuer of credit cards in the nation, earned $129 million last year.

Analysts greeted the news of the sale with relief, saying the immediate hurdle facing MNC had been surmounted while MBNA investors had apparently received a good deal.

On its first day of trading, MBNA's stock -- traded on the New York Stock Exchange under the symbol "KRB" -- closed up at $23.25 a share.

MNC also benefited from the news yesterday, gaining 25 cents to close at $3 a share.

"Now we shouldn't have to worry about holding company funding and liquidity," said David S. Penn, a banking analyst at Legg Mason Inc. in Baltimore.

He said the only surprise attached to the deal, originally expected to close at the end of the month, was how quickly the sale of the subsidiary took place.

But, analysts warned that though MNC's cash crunch appears to be over, problems in the real estate market are expected to continue plaguing its banks.

"Now we have to worry about earnings and asset quality," Mr. Penn said.

According to the terms of the sale outlined by MNC yesterday, MNC will keep the proceeds from the sale of 34.4 million MBNA shares.

Of that amount, 6.7 million shares were purchased directly by Alfred Lerner, MNC's chairman and the company's largest shareholder, and a Cleveland-based insurance company that Mr. Lerner also heads, the Progressive Corp.

Mr. Lerner has applied to federal regulators for permission to serve also as chairman and chief executive of MBNA.

The remaining 10.6 million shares were sold by MBNA, which will keep the funds as additional capital for the bank holding company.

Roughly $50 million will be used to pay underwriters, led by Goldman, Sachs & Co., and for legal fees and other expenses associated with the sale.

MNC said yesterday that for each share sold to the public, the underwriters received $1.27 a share to cover expenses and fees.

MNC is also expected to sell some or all of the 4.5 million additional shares that had been approved in the event demand exceeded the 45 million shares already sold, according to sources who spoke on the condition of anonymity, citing rules barring the company from touting the newly issued stock.

The proposed sale of MBNA was first mentioned in late October when MNC announced it lost $173 million during the third quarter and would sell the credit card unit to raise much-needed cash.

At the time, the company said it planned to sell MBNA in a private transaction and expected that the deal would be complete by the end of the year.

The sale of MBNA became part of a larger plan announced by MNC to sell a number of subsidiaries in an attempt to convert some assets into cash.

After the sale of MBNA apparently bogged down, however, MNC said last month it might spin the company off to the public for as much as $25 a share.

The importance of a quick sale became particularly acute last week. After paying $375 million to a syndicate of banks Jan. 14, MNC still needed to pay note-holders $271 million on Jan. 15.

It received the money for the note-holders from its two banking companies in loans that are due to be repaid Feb. 4.

The following day, Feb. 5, MNC is slated to pay other noteholders an additional $275 million.

And with another $107 million due to investors this spring, all the payments were dependent upon the proceeds generated by the MBNA sale.

In an unrelated announcement yesterday, MNC said it agreed to sell about $300 million in short-term secured loans to Residential Funding Corp., a unit of GMAC Mortgage Corp.

The sale was made up primarily of loans made to mortgage lenders by a division of American Security Bank.

Though the price of the sale was not disclosed, an MNC spokesman, Daniel G. Finney, said it would effectively add about $25 million in capital at American Security.

Residential Funding said it did not expect any layoffs to result from the transaction.

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