Sept. 17 (Bloomberg) -- PHH Corp., the New Jersey-based mortgage lender that agreed to be bought by General Electric Co. and Blackstone Group LP, said the $1.8 billion sale may unravel as lenders back away from some leveraged buyouts.
JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. told Blackstone they may fall $750 million short in funding its part of the deal, PHH said today in a statement. GE, which plans to keep the company's vehicle-leasing unit, may pull out if Blackstone can't get financing. PHH's shares fell 15 percent, the most since it went public in January 2005.
PHH is the second company in a week to warn that an LBO may be derailed as banks seek to renege on lending commitments for smaller buyouts while sticking with big deals such as Kohlberg Kravis Roberts & Co.'s $26 billion takeover of First Data Corp. Reddy Ice Holdings Inc. said Sept. 12 that Morgan Stanley may back out of selling debt for GSO Capital Partners LP's purchase of the company.
``There will be some deals that won't get done, but it won't be the big names,'' billionaire financier Wilbur Ross, whose New York-based WL Ross & Co. invests in distressed companies, said today in an interview. ``Some of the smaller deals have better escape hatches.''
While Blackstone is looking for new loans, ``it is not optimistic at this time that its efforts will be successful,'' PHH said in the statement. Banks are seeking to sell as much as $320 billion in debt for leveraged buyouts. Financing has dried up amid a worldwide shortage of credit, especially for home lenders because of record U.S. foreclosures.
No Obligation
``We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed,'' Stephen White, a spokesman for Fairfield, Connecticut-based GE, said in an interview today. ``But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger.''
PHH shares fell $4.26 to $24.24 at 4:02 p.m. in New York Stock Exchange composite trading. They have lost 16 percent this year, compared with the 1.5 percent decline by the Russell 2000 Index. PHH shareholders are set to vote Sept. 26 on the proposed LBO.
GE, the second-largest company by market value, agreed in March to buy PHH and resell the mortgage unit to New York-based Blackstone, manager of the biggest buyout fund. PHH told GE that it expects the company to ``fulfill its obligations under the merger agreement,'' according to the statement.
PHH, based in the Philadelphia suburb of Mount Laurel, New Jersey, has provided mortgages and related services such as billing for other financial companies to offer under their own brands, including American Express Co. and Charles Schwab Corp.
Pennant Opposition
Pennant Capital Management LLC, PHH's largest shareholder, opposes the sale, saying the company could get more for investors. Pennant owns 9.4 percent of PHH, according to an Aug. 10 filing with the U.S. Securities and Exchange Commission.
Pennant argued in letters to PHH's board in June and August that a separation of the two divisions through a tax-free spin off would yield a better price than the proposed sale to GE and Blackstone. Chatham, New Jersey based Pennant in its Aug. 10 letter estimated PHH would be valued at about $60 in two years if the sale didn't go through.
``There is far more value in PHH than the $31.50 offer,'' Alan Fournier, Pennant's managing member, said in a telephone interview today. ``The fleet business is worth the vast majority of the current share price and the mortgage servicing rights of the mortgage business have become more valuable, not less valuable, over the past six months.''
Blackstone spokesman John Ford declined to comment, as did JPMorgan spokesman Brian Marchiony and Lehman spokeswoman Kerri Cohen. PHH spokeswoman Karen McCallson didn't return a call seeking comment.
Reddy Ice
Reddy Ice, the largest U.S. maker of packaged ice, said in a Sept. 12 filing that Morgan Stanley may back out of financing the $681.7 million deal because the merger agreement was altered without its consent.
The stand-offs follow a successful renegotiation at Home Depot Inc. Banks last month threatened to back out of financing Atlanta-based Home Depot's sale of its contractor-supply unit to buyers including Bain Capital LLC, Clayton Dubilier & Rice and Carlyle Group. Home Depot eventually agreed to lower its price and the buyers increased their cash commitments to the transaction.
GE Mortgage Plans
General Electric intends to exit its mortgage business, the subprime and Alt-A lender WMC Mortgage, the company said on July 13. Subprime home loans, which have the highest risk of default, are made to people with the lowest credit scores. Rather than become a consolidator in the mortgage market, GE decided to exit after three years in the industry, Chief Executive Officer Jeffrey Immelt said told investors in a July conference call.
There were ``too many other better choices'' than investing in the home-loan industry, Immelt said. ``And I just simply wanted to get this off the table vis-a-vis the things that investors have to think about with GE.''
At least 110 mortgage companies have halted loans, closed or sold themselves since the start of 2006, including 90 this year. Buyouts of mortgage companies including Accredited Home Lenders Holding Co. have collapsed as overdue payments rose and U.S. housing sales slumped.
``We look forward to putting the merger discussion behinds us so we can pursue avenues that would unlock much more value over time,'' Pennant's Fournier said.
Showing posts with label JPMorgan. Show all posts
Showing posts with label JPMorgan. Show all posts
Monday, September 17, 2007
Friday, September 14, 2007
after poor retail data
Wall Street experienced another choppy week of trading and with stocks relatively steady on Friday, the major benchmarks were poised for one of their better weeks since the squeeze in the credit and money markets emerged in mid-July.
This relative calm coupled with light trading volumes came before the Federal Reserve meeting and third quarter earnings results from leading investment banks next week. The better mood in stocks reflected hopes that a policy easing next week would prevent financial market stress infecting the broader economy, say analysts.
A record low in the dollar against the euro and a record high in crude oil did not derail stocks this week. Sluggish retail sales data on Friday, on the heels of a weak employment report the previous week, have reinforced expectations that policy-makers will ease rates at least a quarter-percentage point on Tuesday.
"A rate cut will certainly make the markets feel the Fed is with them," said Jack Ablin, chief investment officer at Harris Private Bank.
At midday, the S&P 500 index was steady around 1,483.61, for a rise of 2.1 per cent this week. The S&P has now rebounded more than 5 per cent from its mid-August low of 1,406.70 when credit concerns intensified. That leaves the benchmark just over 4 per cent below its record close of 1,553 from mid-July.
"The rhetoric from Wall Street is for a rate cut, but if you watch what they have done, the leadership seen in stocks reflects expectations of a better economy, not a crisis," said Jim Paulsen, chief investment strategist at Wells Capital Management.
Although energy stocks led the S&P's major sectors higher, retailers and financials also rebounded smartly this week. Technology, which had done well in prior weeks, lagged in recent days.
Homebuilders also underperformed. This group has now fallen more than two-thirds from its peak in 2005.
At midday, the Nasdaq Composite was unchanged at 2,601.02, but had risen 1.4 per cent since Monday.
The weak dollar helped boost the appeal of large multinational companies, such as those in the technology sector, and the Nasdaq 100 index was up 2.2 per cent this week, outpacing the Composite.
Among big technology stocks, Apple rose 5.3 per cent to $138.38 as it announced the sale of 1m iPhones. UBS raised its price estimate to $182.
The Dow Jones Industrial Average was a fraction higher on Friday at 13,426.83, and had gained 2.4 per cent over the week. This was the Dow's best week since a rise of 2.8 per cent for the week ending April 20.
A number of Dow stocks surged this week. McDonald's rallied 10.5 per cent to $54.80 and set a record high of $54.95 yesterday. The fast food group announced a 50 per cent increase in its annual cash dividend to $1.50 a share after posting a 8.1 per cent rise in global same-store sales during August.
Boeing rose 4.6 per cent to $99.17, as the aircraft maker announced it had won a $1.1bn US Air Force deal.
As oil entered record territory, Exxon Mobilgained 4.2 per cent to $89.43.
JPMorgan, a Dow banking stock, rallied 4.6 per cent to $45.55 as investors continued to discriminate among financials.
The S&P Financials sector rose 2.4 per cent this week, reversing some of the 5 per cent loss in the preceding two weeks. The S&P Investment bank index rose 5.2 per cent, its best weekly performance since mid-April, and had largely repaired the damage of the previous two weeks.
Among the brokerages, Lehman outperformed with a rise of 10.9 per cent to $58.71. Bear Stearnsrallied 9.9 per cent to $115.75 and steadily accrued gains from Monday, when a filing revealed that wealthy financier Joseph Lewis was the investment bank's single largest shareholder after a stake-building that began two months ago.
Attention will now focus on sector earnings. "The major investment banks, namely Lehman, Bear, and Goldman report and undoubtedly will help set the tone for stocks and help gauge why damage was done over the last few months," said David Ader, bond strategist at RBS GreenwichCapital.
Countrywide, the largest US mortgage lender, plunged early this week and touched a low of $16.18 as fears over its ability to secure financing intensified. On Thursday, the bank said it has secured $12bn in financing and the stock rose 14 per cent, and was up a further 2 per cent to $19.30 on Friday. (Financial Times)
This relative calm coupled with light trading volumes came before the Federal Reserve meeting and third quarter earnings results from leading investment banks next week. The better mood in stocks reflected hopes that a policy easing next week would prevent financial market stress infecting the broader economy, say analysts.
A record low in the dollar against the euro and a record high in crude oil did not derail stocks this week. Sluggish retail sales data on Friday, on the heels of a weak employment report the previous week, have reinforced expectations that policy-makers will ease rates at least a quarter-percentage point on Tuesday.
"A rate cut will certainly make the markets feel the Fed is with them," said Jack Ablin, chief investment officer at Harris Private Bank.
At midday, the S&P 500 index was steady around 1,483.61, for a rise of 2.1 per cent this week. The S&P has now rebounded more than 5 per cent from its mid-August low of 1,406.70 when credit concerns intensified. That leaves the benchmark just over 4 per cent below its record close of 1,553 from mid-July.
"The rhetoric from Wall Street is for a rate cut, but if you watch what they have done, the leadership seen in stocks reflects expectations of a better economy, not a crisis," said Jim Paulsen, chief investment strategist at Wells Capital Management.
Although energy stocks led the S&P's major sectors higher, retailers and financials also rebounded smartly this week. Technology, which had done well in prior weeks, lagged in recent days.
Homebuilders also underperformed. This group has now fallen more than two-thirds from its peak in 2005.
At midday, the Nasdaq Composite was unchanged at 2,601.02, but had risen 1.4 per cent since Monday.
The weak dollar helped boost the appeal of large multinational companies, such as those in the technology sector, and the Nasdaq 100 index was up 2.2 per cent this week, outpacing the Composite.
Among big technology stocks, Apple rose 5.3 per cent to $138.38 as it announced the sale of 1m iPhones. UBS raised its price estimate to $182.
The Dow Jones Industrial Average was a fraction higher on Friday at 13,426.83, and had gained 2.4 per cent over the week. This was the Dow's best week since a rise of 2.8 per cent for the week ending April 20.
A number of Dow stocks surged this week. McDonald's rallied 10.5 per cent to $54.80 and set a record high of $54.95 yesterday. The fast food group announced a 50 per cent increase in its annual cash dividend to $1.50 a share after posting a 8.1 per cent rise in global same-store sales during August.
Boeing rose 4.6 per cent to $99.17, as the aircraft maker announced it had won a $1.1bn US Air Force deal.
As oil entered record territory, Exxon Mobilgained 4.2 per cent to $89.43.
JPMorgan, a Dow banking stock, rallied 4.6 per cent to $45.55 as investors continued to discriminate among financials.
The S&P Financials sector rose 2.4 per cent this week, reversing some of the 5 per cent loss in the preceding two weeks. The S&P Investment bank index rose 5.2 per cent, its best weekly performance since mid-April, and had largely repaired the damage of the previous two weeks.
Among the brokerages, Lehman outperformed with a rise of 10.9 per cent to $58.71. Bear Stearnsrallied 9.9 per cent to $115.75 and steadily accrued gains from Monday, when a filing revealed that wealthy financier Joseph Lewis was the investment bank's single largest shareholder after a stake-building that began two months ago.
Attention will now focus on sector earnings. "The major investment banks, namely Lehman, Bear, and Goldman report and undoubtedly will help set the tone for stocks and help gauge why damage was done over the last few months," said David Ader, bond strategist at RBS GreenwichCapital.
Countrywide, the largest US mortgage lender, plunged early this week and touched a low of $16.18 as fears over its ability to secure financing intensified. On Thursday, the bank said it has secured $12bn in financing and the stock rose 14 per cent, and was up a further 2 per cent to $19.30 on Friday. (Financial Times)
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