MoneyGram's Credit Rating Cut to Junk

NEW YORK (AP) -- Credit rating agency Moody's Investors Service on Friday downgraded the credit rating of payment services provider MoneyGram International Inc. to 'junk' status, citing its exposure to subprime mortgages and collateralized debt obligations within its securities portfolio.

The rating was lowered to "Ba1" from "Baa3," which is the lowest level considered investment grade. Moody's also placed the rating on review for a possible further downgrade.

Credit rating downgrades make it more expensive and generally tougher for companies to borrow money.

Borrowers of subprime mortgages have increasingly defaulted in recent months. That has led to companies invested in securities and CDOs backed by the loans to write down the value of those holdings. CDOs are complex financial instruments which combine slices of assets and debt.

MoneyGram, through regulation and contracts, is required to keep one-to-one coverage of its payment service obligations with assets such as those in its investment portfolio, Moody's said. By writing the subprime and CDO investments down, MoneyGram has been forced to find other forms of investments and revenue to make up for the loss.

The additional review will determine how further potential writedowns might affect MoneyGram's financial flexibility, Moody's said in a statement.