Blackstone, banks can't agree on PHH deal: sources

By Michael Flaherty

NEW YORK (Reuters) - Blackstone Group (BX.N: Quote, Profile, Research, Stock Buzz) and the banks involved in the $1.8 billion takeover of mortgage and vehicle fleet company PHH Corp (PHH.N: Quote, Profile, Research, Stock Buzz) 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: Quote, Profile, Research, Stock Buzz) and Lehman Brothers Holdings Inc. (LEH.N: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz) 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.