H&R Block has sold the mortgage loan-servicing business of its Option One Mortgage Corp. subsidiary to investor Wilbur Ross' private equity firm in a transaction valued at approximately $1.1 billion.
The troubled business has been on the block since last year in the midst of the turmoil in the mortgage market. Block shut down Option One's mortgage origination activities after a sale agreement with Cerberus Capital Management fell through in December. This time around, Block is being careful in case the latest deal also falls through as the mortgage market continues to decline.
"In today's turbulent markets, the challenge is to complete a transaction, not simply announce an agreement," said Block chairman Richard C. Breeden (pictured) in a statement. "We have reached what we consider to be a good agreement with WL Ross & Co., whose reputation for completing transactions is excellent. However, there is still much work to be done until the business is safely transferred at closing."
Under the agreement, both Block and Ross' firm will be freed from any obligations if the transaction does not close by May 30, 2008. The ultimate purchase price will be based on a formula to be applied to the closing date balance sheet of the servicing business.
Based on the balance sheet as of Jan. 31, 2008, Ross's firm would have assumed approximately $1.07 billion in servicing advances made by Option One on behalf of mortgage security holders at a formula price of $0.97 per $1.00 of outstanding servicing advances. However, Block expects the amount of outstanding servicing advances to grow before the deal closes.
