Cerberus Subprime Deal On The (Credit) Line

Jul 6 2007 | 11:16am ET

Cerberus Capital Management’s deal for a subprime mortgage lender may be in jeopardy after Lehman Brothers cut off a $1.5 billion line of credit.

Lehman Brothers’ decision not to renew the warehouse credit facility leaves Option One, currently owned by H&R Block, with just $8 billion in committed lines of credit. That was the minimum level set by Cerberus when it agreed to pay roughly $800 million for the lender in April. And waivers on $3.75 billion in additional credit lines—necessary because in-the-red Option One has been in violation of minimum-income requirements—are due to expire this month, including Citi’s $1.5 billion commitment.

One bright spot was Bank of America’s decision to boost its warehouse line by $250 million, after slashing it from $4 billion to $2 billion in May. The credit increase will last until the sale is closed, which is expected to occur in October.

H&R Block said “the company is managing its total warehouse lines to the $8 billion level, and we are confident that we have the current and potential lending relationships to maintain at least this amount in place through the closing of the Option One sale.”

“It wouldn’t make sense for us to spend money to maintain greater warehouse capacity than required,” the company said.

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