PHH deal may collapse over debt finance shortfall

By Mark McSherry

NEW YORK (Reuters) - Mortgage and vehicle fleet company PHH Corp (PHH.N), which agreed to be acquired by General Electric Co (GE.N) and Blackstone Group LP (BX.N), 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) and Lehman Brothers Holdings Inc LEH.N 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.

CREDIT TURMOIL

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

However, in a statement, GE spokesman Stephen White said: "GE continues to hope that Blackstone will succeed in arranging its financing so the merger can be completed. But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger."

The turmoil in credit markets has held up financing packages for numerous U.S. takeover deals.

On Friday, Finish Line Inc (FINL.O) said Swiss bank UBS (UBSN.VX) warned it may terminate its agreement to finance Finish Line's $1.5 billion purchase of shoe and hat retailer Genesco Inc (GCO.N).

Also last week, Morgan Stanley (MS.N) threatened to pull its debt financing from the leveraged buyout of Reddy Ice (FRZ.N), according to a regulatory filing, amid a fight with the buyer over deal terms.

The maker of packaged ice agreed to be bought by hedge fund GSO Capital Partners in July for $1.1 billion, with Morgan Stanley providing around $700 million of debt financing.

(Reporting by Mark McSherry)