PHH, the US mortgage and vehicle leasing company, has scrapped its $1.8 billion (€1.23 billion) sale to General Electric (GE) and Blackstone Group because Blackstone failed to get financing for the transaction.
GE agreed on March 15th last to buy PHH, sell the mortgage division to private equity group Blackstone and keep the vehicle- leasing unit. The acquisition price was $31.50 a share.
PHH said last September that JPMorgan Chase and Lehman Brothers Holdings told Blackstone they may fall $750 million short in funding the private equity firm's part of the deal.
Blackstone "was not able to obtain the requisite debt financing", PHH said in a statement. "The board will determine in due course whether to continue to explore the company's strategic alternatives."
The deal collapsed as banks struggle to unload debt from 2007's record $438 billion of leveraged buyouts. Losses from securities tied to subprime mortgages cut demand for higher-yielding assets. PHH said it asked for $50 million from Blackstone as a termination fee, in terms of the agreement.
PHH, based in New Jersey, has provided mortgages and related services such as billing for other companies to offer under their own brands, including American Express and Charles Schwab.
"There can be no assurance that any further exploration of strategic alternatives that the board may determine to undertake will result in any agreements or transactions," PHH said in its statement.
Leveraged buyouts declined to $101.9 billion in the second half of 2007 from $336.4 billion in the first six months as the subprime market collapsed. Interest rates on loans rated B rose to 4.28 percentage points more than the three-month London interbank offered rate, a lending benchmark, from a low of 2.13 in February, according to Standard & Poor's.
Lower premiums earlier in 2007 allowed private equity firms led by Kohlberg Kravis Roberts and Blackstone to pursue the biggest leveraged buyouts on record. Buyout groups, which use their own funds and debt to pay for takeovers and then improve profit by boosting sales, selling assets and cutting costs, required lenders to provide funds while subprime contagion spread.
(Bloomberg)
