The mortgage crisis and resulting credit crunch could sink a deal to buy the parent of PHH Arval, a vehicle fleet leasing company with 1,000 employees in Sparks, the company said yesterday.
The disclosure sent shares of parent PHH Corp. down nearly 15 percent, or $4.26, to close at $24.24, reflecting investor skepticism that PHH will be able to close a deal announced in March to be sold for $31.50 a share.
Under that deal, which valued the company at $1.8 billion, General Electric Co. subsidiary GE Capital Solutions planned to buy all of PHH, fold the fleet leasing operations into its own and immediately sell PHH's larger mortgage unit to Blackstone Group, a New York-based private equity firm.
But Blackstone has notified PHH that its banks are pulling back on the financing to buy the mortgage business, PHH said in a statement and filing with the Securities and Exchange Commission.
And GE's agreement to buy PHH is contingent on selling the mortgage unit to Blackstone.
"In the marketplace, the important thing is perception, not reality, and the perception is that the mortgage business is not a business you want to be in," A.B. "Buzzy" Krongard, PHH's non-executive chairman, said yesterday.
In reality, he said, PHH has little exposure to subprime mortgages - loans made to people with subpar credit. Subprime mortgages have been experiencing increasing default rates, causing a general tightening in mortgage lending and in credit generally.
Some mortgage lenders have filed for bankruptcy, others have retrenched and thousands of employees have been laid off.
The problems in the mortgage industry could be "a great opportunity" for PHH, Krongard said. PHH specializes in "private label" mortgages, in which it provides loans under the name of a bank or other company.
With the problems in the mortgage industry, he said, banks and other lenders may be looking to outsource their mortgage business to a company such as PHH.
Meanwhile, PHH said in a letter to shareholders yesterday, it intends to go ahead with a shareholder meeting to vote on the sale, scheduled for a week from tomorrow at its New Jersey headquarters, although "there can be no assurances ... that the merger will close by the end of the year, if at all."
Krongard declined to discuss any "Plan B" for PHH if the deal falls through.
"Right now, we're on Plan A," he said. "We don't know what GE is going to do," he added. "We don't know what Blackstone is going to do."
