Blackstone-GE Bid for PHH Sinks

PHH is a mortgage and leasing business that General Electric has been working on purchasing for $1.8 billion. Once the deal closed, GE would sell off the mortgage part of the company to private equity firm Blackstone. The deal hasn't closed yet, and the December 31 deadline has passed. Blackstone says the bankers are at fault. The bankers are blaming the changed portfolio value of PHH. And PHH is claiming someone owes it a $50 million break-up fee. This is still more credit crunch fall out.

Blackstone put out a statement that said, “Blackstone was prepared to close its end of the transaction using the financing that in March was originally committed to be made available. We regret that the banks are now unwilling to provide financing under the terms they originally agreed to.” The banks in question are JPMorgan Chase & Co. and Lehman Brothers Holdings Inc.

They claim that the value of PHH has fallen since March. While PHH isn't in the subprime mortgage business, its overall value hinges on the value of the mortgages in its portfolio, and the banks say the company just isn't worth what they had committed to back in March. In September, they told the press that the had “revised [their] interpretations” of what the company was worth.

As with most deals that are as advanced as the GE-PHH arrangement, there is a break-up fee, a penalty to be paid if the transaction doesn't close. PHH says Blackstone is at fault (GE was ready to go) since it couldn't get its bankers on board. However, the Financial Times quoted an unnamed but informed source as saying, “It is unclear if a break-up fee is owed at all. You could argue that it never got to that stage since the terms and conditions were never met.”

The fallout from this deal will go on for some time and only the lawyers will do well out of it. This is, however, an example of just how nervous the market has become. When Blackstone's bankers don't want part of a deal, things are jumpy indeed.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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