H&R Block Gets $350 Million Funding for Subprime Unit

H&R Block
H&R Block

H&R Block, the largest U.S. tax preparer, Friday said the subprime lending unit it is trying to sell has obtained $350 million of new funding capacity from a unit of Royal Bank of Scotland.

In a U.S. Securities and Exchange Commission filing, H&R Block said Option One Mortgage obtained the funding from Greenwich Capital Financial Products on Nov. 16. The increase boosts the sum available under a credit facility to $750 million from $400 million.

Separately, H&R Block said its Block Financial unit on Nov. 20 drew down $100 million from two credit lines, giving it $1.725 billion out of a possible $2 billion outstanding. It was at least the fifth drawdown since mid-August.

H&R Block also said Block Financial on Nov. 19 arranged to amend the credit lines to reduce the minimum net worth it needs to maintain without risking possible default, and to pay down some borrowings if Option One were not sold by Jan. 31, 2008.

Kansas City, Missouri-based H&R Block on Nov. 20 replaced Chairman and Chief Executive Mark Ernst after mounting losses from subprime mortgages, which go to people with poor credit.

Richard Breeden, an activist investor and former U.S. Securities and Exchange Commission chairman, was named chairman. A search has begun for a permanent chief executive.

Breeden has said he wants H&R Block to quit subprime lending and other businesses unrelated to tax preparation.

H&R Block agreed in April to sell Irvine, California-based Option One to private equity firm Cerberus Capital Management, but that agreement fell apart. The company has said it wants to preserve a sale of at least part of the unit.

Shares of H&R Block closed Wednesday at $19.00 on the New York Stock Exchange. They began the year at $23.04. U.S. stock markets were closed Thursday for the Thanksgiving Day holiday.