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Credit Squeeze Hitting Home Globally

Written by A Forex View From Afar on Tuesday, January 01, 2008

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Blackstone’s PHH deal hit by credit squeeze

A $1.8bn deal between General Electric and Blackstone to acquire PHH, a mortgage and leasing business, became the latest casualty of turmoil in the credit markets as PHH said on Tuesday it had terminated the agreement.
Blackstone Group immediately put out a statement suggesting it held its banks responsible for the failure of the deal to go through.

“Blackstone was prepared to close its end of the transaction using the financing that in March was originally committed to be made available,” it said. “We regret that the banks are now unwilling to provide financing under the terms they originally agreed to.”
However, the banks have insisted that the buying group needed to renegotiate the terms of the financing. The PHH deal is unusual because the lending commitment depends on the value of assets in the mortgage lender’s portfolio. The banks have said some of the underlying mortgage assets did not meet the standards under the original agreement.
PHH is not in the subprime mortgage business, but the value of its mortgages has deteriorated since September, when PHH announced there could be a $750m shortfall in the debt financing from banks led by JPMorgan and Lehman Brothers.
It was not clear who, if anyone, is liable to pay the $50m break-up fee in the deal. PHH’s demand that Blackstone pay the fee for not completing the deal by the December 31 deadline indicates that it blames the private equity group for the delay.

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