Option One May be Out of Options!
Option One’s credit lines reducedBy GENE MEYERThe Kansas City Star
H&R Block Inc. on Friday said lenders had reduced two credit lines to its Option One subprime mortgage unit and terminated two others because of fewer loans by the subsidiary.
The cuts followed similar reductions four weeks ago and were part of adjustments made to align Option One’s borrowing lines with its reduced mortgage production, said Nick Iammartino, a Block spokesman.
The credit lines involved warehouse loans- money that lenders such as Option One borrow for short periods to maintain and store mortgages before repackaging and selling them to investors. The latest reductions trimmed Block’s warehouse credit lines to $1.58 billion, from $4.4 billion.
Block said in a Securities and Exchange Commission filing that one credit line, from Bank of America, had been cut to $750 million from
$2.25 billion and extended through June 12. It said that another, from a group led by Citigroup, had been cut to $75 million from $150 million and extended through Nov. 15.
Two other credit lines from groups led by units of UBS and Deutsche Trust, totaling $1.25 billion, were terminated, according to the filing.
A third credit line, for $750 million from Greenwich Capital, remained unchanged.
The Kansas City tax preparation and financial services firm reached an agreement in April to sell Option One to Cerberus Capital Management LP.
Cerberus is a huge global investment fund with a penchant for buying and overhauling distressed properties.
Under the original terms, Cerberus agreed to buy the unit at a $300 million discount from what originally were estimated to be $1.27 billion in assets if Option One continued to hit a specified loan volume. Both Cerberus and Option One have been caught in a morass of deteriorating mortgages since then, and deadlines for the sale were extended, most recently until Dec. 31.
Privately held Cerberus owns a 51 percent stake in General Motors Acceptance Corp., whose heavily subprime $63 billion mortgage portfolio hasn’t shown a profit in two years. Aegis Mortgage, another subprime lender in the fund’s portfolio, filed for bankruptcy in August.
Option One lending has dropped significantly in the subprime market meltdown, and Block announced in August that the unit was ending new loans to borrowers who had poor credit or who wanted large loans. Block said over the summer that it was discussing a renegotiation of its sales agreement and that the transaction ultimately might involve only Option One’s mortgage servicing operations.
Block shares closed Friday at $20.59, down 57 cents on the New York Stock Exchange.
