Blackstone, banks can't agree on PHH deal: sources
NEW YORK (Reuters) - Blackstone Group (BX.N) and the banks involved in the $1.8 billion takeover of mortgage and vehicle fleet company PHH Corp (PHH.N) have yet to agree on a way to resolve a financing shortfall, dimming the prospects that the deal will go through.
According to sources involved with the deal, Blackstone is unlikely to cough up the entire amount needed to fill the financing gap. Other options are dwindling, sources say.
Meanwhile, JPMorgan (JPM.N) and Lehman Brothers Holdings Inc. LEH.N, the banks financing the leveraged buyout, are sticking to their stance disclosed last month that the debt portion of the deal will be $750 million less than first agreed.
Blackstone is scheduled to come back to PHH by the end of this month with an indication that it is able to complete the deal.
But sources say that Blackstone's talks with the banks are not going well. Should Blackstone decide to back out of the deal and pay a break-up fee, the move could cause the entire transaction to fall apart.
If it did, the PHH takeover would be the latest in a parade of deals that were struck at the height of the boom in private equity deals but were scuttled after a credit crunch roiled stock and bond markets.
General Electric Co (GE.N) and Blackstone Group said in March they would buy PHH for $1.8 billion, or $31.50 per share. Lehman Brothers is also a buyside adviser to GE.
Under terms of the deal, GE would keep the fleet services group and Blackstone would get the mortgage business.
The mortgage market slumped further after the deal and sent the subprime lending market in a tailspin. That sparked a credit crunch that crippled investment banks and private equity buyers.
PHH said last month that Blackstone told GE in a letter that JPMorgan and Lehman warned of a financing shortfall of up to $750 million.
PHH's stock dropped below $23 per share on the news that day, but have since gained. On Monday, they closed at $26.73.
Blackstone President Hamilton James said last month that the firm was working with the banks.
"Obviously we need to have more capital than the banks are now offering. We're working with them and we hope we have them back on the reservation," James said, speaking on the sidelines of a conference.
But sources say that time is running out and the two sides remain at an impasse.
The buyers of PHH are angry with the investment banks, sources say, with GE particularly peeved at Lehman over its role as both a buyside adviser and an underwriter that will not let Blackstone borrow as much as it wants. Continued...
