Option One Sees Lehman Credit Line Expire; ‘Dangerous’ Time for Cerberus Deal?

Catching up on some important news from last week, Option One reported that a $1.5 billion credit line with Lehman Brothers Holdings Inc. wasn’t renewed by the investment bank after the credit line expired at the end of June.

Bloomberg reports on the obvious implications of this news, which leaves Option One facing some questions regarding the stability of its deal with Cerberus:

Cerberus Capital Management LP, a New York-based hedge fund manager, demanded Option One maintain warehouse lines of at least $8 billion when it agreed to buy the unit in April. Investors are counting on the sale to stem mortgage losses that totaled $808 million in fiscal 2007 and free H&R Block to focus on its tax preparation business, which hasn’t grown in the last two years.

This leaves Option One skirting dangerously close to the line,” said Kathleen Shanley, an analyst at Gimme Credit who has a “deteriorating” credit score on H&R Block. “The company has little margin for error.”

The loss of the Lehman line reduced Option One’s borrowing capacity to $8 billion in committed loans and $2 billion in uncommitted lines of credit, according to the Bloomberg report.

While Option One executives are saying all the right things in public regarding having “confidence” in “current and potential” lending relationships, it’s clear there is at least some doubt among investors, with the stock dropping 2.1 percent to $22.55 last week and recovering only slightly this morning, up to $22.62 as of noon EDT.

I have to think Option One execs are scrambling to ensure that those “potential” lending relationships they’ve referred to in their efforts to assuage concerns over the stability of the pending Cerberus purchase are as close to becoming “current” relationships as humanly possible.