H&R Block, Cerberus call off Option One Mortgage sale

 

 

Tuesday, December 04, 2007

Kansas City Business Journal

Article Courtesy of Mlive.com

 

 

H&R Block Inc. and Cerberus Capital Management LP have agreed to terminate Block's sale of its Option One Mortgage Corp. subsidiary.

In a filing Tuesday with the Securities and Exchange Commission, Kansas City-based Block (NYSE: HRB) said the companies decided to terminate the transaction because they couldn't agree about how to restructure the April sale agreement "in light of the widespread changes in mortgage market conditions and the substantial reduction in new lending" by Option One.

Block said it will close all remaining loan-origination activities of Option One, which ceased accepting new mortgage loan applications, effective immediately. Option One will honor existing loan commitments for loans in process, which consist of about $30 million in principal loan amount.

The majority of Option One's loans in process will be eligible for sale to Fannie Mae or Freddie Mac, Block said, and most of the remaining loans in process are prime loans eligible for ordinary sale. After financing loan commitments in process, Option One will complete its exit from all mortgage origination activities.

Block also said that it has named Fabiola Camperi as president of Option One. Camperi currently is executive vice president of operations.

Camperi succeeds Steven Nadon as president. Nadon and Option One CEO Robert Dubrish resigned effective Tuesday, Block spokesman Nick Iammartino said.

"The company is determined to complete our exit from subprime mortgage lending without further delay, and today's action largely completes that objective," Block Chairman Richard Breeden said in the filing. "The mortgage market today has undergone vast changes since last April, when the original Cerberus deal was signed. Despite the hard work and good faith of both sides, we could not find a way to restructure the original transaction to mutual satisfaction. The termination agreement frees H&R Block to halt OOMC's remaining origination activities without incurring additional operating costs.

"At the same time, we will continue to pursue the ultimate sale of our servicing activities. The H&R Block board determined this outcome was in the best interests of our shareholders, and we hope it will ultimately lead to higher value than we could have achieved through a renegotiated Cerberus transaction."

As part of ceasing mortgage originations, Option One will close three offices, eliminate about 620 jobs and take a pretax restructuring charge of roughly $75 million. That charge includes severance and lease-termination costs; write-off of property, plant and equipment; and other related shutdown costs. Block will take about $34 million pretax of the restructuring charge in its fiscal second quarter, which ended Oct. 31, and the remainder mainly in its third quarter, which ends Jan. 31.

The company said it also expects to incur pretax charges of about $7 million in the third quarter for restructuring activities it announced in August, when Block said Option One would cut about 185 jobs in addition to roughly 615 job cuts Block had announced in May.

Block had said it expected to take a pretax restructuring charge of about $19 million in fiscal 2008 for the job reduction announced in May.

After the job cuts, Option One will have about 800 employees in its servicing business, Block spokesman Nick Iammartino said. None of those employees work in the Kansas City area, he said.

After the job cuts, Option One will have about 800 employees in its servicing business, Iammartino said.

Block ranks No. 3 on the Kansas City Business Journal's list of area public companies.