Plainfielders wondering how the mortgage mess impacts us locally may want to ponder the following tale.
PHH, the country's 7th-largest residential mortgage originator, pulled the plug on a buyout deal by Blackstone that was to be consummated by midnight last night. The reason given was that Blackstone was unable to pull together the loans necessary to complete the purchase, or to put up its own cash to close the -- relatively small -- deal.
The foreground story is that the 'buy and strip' model -- where private equity firms float huge loans to buy out companies, strip out the value, sell off the assets and leave the shells behind, saddled with new and humongous debt -- has hit a rough patch of road. Bottom line: The banks putting up the money don't believe PHH is worth what the deal was set at. Financial media are focused on the harm this does to Blackstone's image and relations with the banks.
The back story is about what this means for PHH.
The company's chairman is quoted in the NY Times as saying --
"there can be no assurance that any further exploration of strategic alternatives that the board may determine to undertake will result in any agreement or transactions."Translation: The company is in deep doo-doo, and if it doesn't find a buyer, its future is cloudy to say the least.
How does this translate into local impact?
PHH is one of the four companies spun off by Cendant Corporation in 2005 (it got the mortgage and vehicle leasing businesses).
One of the sister companies spun off at the same time is Realogy (it got the real estate franchises) -- now the parent corporation of such local real estate brands as ERA, Burgdorff-ERA, Century 21 and Coldwell Banker.
PHH, on its own and through its 'privately branded' mortgages, has been a major mortgage partner of these former sibling operations.
Difficulties for PHH can ripple down to the real estate companies, whose agents must help buyers find mortgages in order to close sales.
Stay tuned.
- NY Times: "Deal to Buy Mortgage Company Collapses"
- Wall Street Journal: "A Failed Deal Harks Back to '07"
- WashPost: "Credit Crunch Puts the Brakes on Buyout Blitz"
- Website: "PHH"
- Website: "Realogy"
- Wesite: "Cendant Corporation"
-- Dan Damon
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