H&R Block Inc (HRB.N: Quote, Profile, Research) said on Thursday it is renegotiating the planned sale of its Option One Mortgage Corp subprime lending unit to Cerberus Capital Management LP, a move that casts doubt on the largest U.S. tax preparer's ability to complete the sale.
Kansas City, Missouri-based H&R Block agreed in April to sell Option One to Cerberus, a private equity firm, for an estimated $1 billion, but on Thursday said some closing conditions have not been met.
It is in talks to divest or wind down Option One's mortgage lending business, and might incur costs in doing so. Cerberus would buy Option One's loan servicing operations.
The company also said its quarterly loss more than doubled to $302.6 million, or 93 cents per share, from $131.4 million, or 41 cents, a year earlier, hurt by Option One losses. The loss from continuing operations, excluding Option One and two other businesses, was $109.8 million, or 34 cents per share.
H&R Block is also seeking waivers of conditions requiring Option One to fund $2 billion of loans within 60 days of closing, and have at least $8 billion of so-called warehouse lines of credit.
The company is trying to complete the transaction ahead of the December 31 termination date, but said if talks fail, "there can be no assurance" the transaction will close.
Subprime lenders make loans to people with weaker credit histories. Dozens have quit the industry this year, including many that went bankrupt. Rising borrowing costs and stagnating home prices led to increases in delinquencies and defaults, while tight capital markets deprived lenders of needed cash.
Shares of H&R Block closed Wednesday at $19.50 on the New York Stock Exchange. They began the year at $23.04.