It's the latest deal to be torpedoed by the credit crunch. Blackstone had planned to team up with General Electric to buy and then break up PHH, a mortgage lending and car fleet management company, but back in September it emerged that the two groups were having trouble raising the required debt package. Since Blackstone wasn’t prepared to stump up the difference, the process stalled – and now the final deadline of December 31 has been and gone. As a result, PHH says it’s owed a $50m break fee.
Naturally, everyone seems to be blaming everyone else. PHH is sending the bill to Blackstone, according to its press release – but the buyout firm is blaming the lending banks (reportedly led by JP Morgan and Lehman Brothers) for reneging on the original deal. ‘We regret that the banks are now unwilling to provide financing under the terms they originally agreed to,’ Blackstone said sniffily yesterday. Some bankers are even suggesting that the break fee doesn’t even apply, because the deal didn’t get far enough along the line.
Either way it’s all a bit of an embarrassing start to 2008 for Blackstone, which prides itself on its relationship with banks and its ability to get deals done. This was a relatively small deal by its lofty standards, but it was vulnerable because of PHH’s exposure to US mortgage assets. That meant the lending banks had even less chance of shifting the debt off their books afterwards – and this is hard enough anyway at the moment because there are so few buyers in the market.
So just in case you’d started thinking that sub-prime mortgage woes were so 2007, think again – this is a story that’s going to run and run. At this rate, Blackstone boss Stephen Schwarzman should perhaps save his millions this year and have his birthday party at Pizza Hut instead...