Capital Markets

Credit Crunch Could Sink GE-Blackstone Deal

The Blackstone Group may not get the $750 million in financing that lenders had agreed to provide to buy a mortgage unit from GE.
Stephen TaubSeptember 17, 2007

GE’s planned acquisition of a fleet-management business may fall flat because of the subprime mortgage crisis.

In March, the company, PHH Corp., agreed to be acquired by GE Capital Solutions, the leasing, financing, and asset-management unit of General Electric, for $1.8 billion in cash. Under the arrangement, GE would then sell PHH’s mortgage operations to The Blackstone Group.

On Monday, however, citing “revised interpretations,” PHH said Blackstone may not get the $750 million in financing that lenders JPMorgan Chase and Lehman Brothers had agreed to provide.

For its part, Pearl Acquisition, the Blackstone affiliate that plans to buy the mortgage business from GE, stated in a letter to GE that it believes that the revised interpretations were inconsistent with the terms of the debt-commitment letter, according to PHH. The Blackstone unit also said that intends to continue its efforts to obtain the debt financing from the investment banks as well as explore the availability of alternative debt financing.

But Pearl has said it isn’t optimistic that its efforts to pick up the financing will be successful or that all of the conditions to closing the merger will be satisfied, according to PHH. “We have advised GECC that we expect it to fulfill its obligations under the merger agreement,” PHH asserted in a press release.

Reuters reported that 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.”