PHH deal may collapse over debt finance shortfall

By Mark McSherry

NEW YORK (Reuters) - Mortgage and vehicle fleet company PHH Corp (PHH.N: Quote, Profile, Research, Stock Buzz), which agreed to be acquired by General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz) and Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz), said on Monday its takeover could collapse because Blackstone faces a shortfall of up to $750 million in debt financing.

PHH shares were down 16.8 percent to $23.71 on the New York Stock Exchange in afternoon trading. The deal struck in March to acquire PHH was done at $31.50 per share in cash, or about $1.8 billion.

If the PHH deal fell apart, it would be the latest casualty of the turmoil currently roiling credit markets.

PHH said Blackstone told GE in a letter that it received revised interpretations on debt availability for the deal from J.P. Morgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz) that could result in a shortfall of up to $750 million.

Blackstone will continue its efforts to obtain debt financing but is not optimistic, PHH said. Blackstone has also said there can be no assurances that conditions to closing the deal will be satisfied, PHH added.

Under the terms of the March transaction, GE would retain PHH's vehicle fleet company PHH Arval and then sell PHH Mortgage to Blackstone immediately after closing.

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Mount Laurel, New Jersey-based PHH said it expects GE to fulfill its obligations under the merger deal.