H&R Block Taps Credit Lines

Faced with “increasingly constrained and unstable” credit markets, H&R Block said it has tapped into its working lines of credit to provide "a more stable source of funds" to support short-term needs. The drawdown, by subsidiary Block Financial Corp., was done in two takes; one of $200M on August 16, which was repaid with part of the second $850M draw on August 20. Block said it expects to continue using these credit lines “until the commercial paper stability and market pricing return to normal levels.” The company said it has $2B available, which “exceeds the company’s current short-term and expected future borrowing needs." The move by the provider of tax-return preparation services comes a week after Countrywide Financial Corp. drew down $11.5B from credit lines. Moody’s on Tuesday, downgraded Block Financial debt to “Baa1” from “A3,” on concerns continued mortgage market turmoil might kill the planned sale of its Option One Mortgage unit to Cerberus Capital Management for a price that adjusts according to the underlying value of the mortgage portfolio. Block recently said the deal, which was supposed to have closed in October, may not close until December. Separately, proxy adviser Institutional Shareholder Services recommended that investors elect a slate of three dissident directors nominated by investment firm Breeden Partners to the company’s board. Block said it was “disappointed” with the recommendation. Breeden wants Block to consider options to “stop the bleeding” in the subprime mortgage business, which is conducted by Option One.

Sources: Press release, TheStreet.com, Reuters, Wall Street Journal
Commentary: H&R Block CEO: Straight Shooter Aims at Hedge Fund • Money Market Malaise: Commercial Paper Remains Problematic • H&R Block Reports Net Loss On Subprime Woes, Misses Estimates
Stocks/ETFs to watch: HRB, CFC. Competitors: INTU, JTX

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.