Block mortgage unit loses credit line

H&R; Block Inc.’s mortgage unit lost a $1.5-billion credit line, falling “dangerously close” to the minimum amount of borrowing capacity demanded by a hedge fund firm that has agreed to buy the money-losing home lender.

The tax-preparation giant, based in Kansas City, Mo., said it was confident the loss of the credit line wouldn’t stop the sale of sub-prime lender Option One Mortgage Corp. to Cerberus Capital Management, a New York-based hedge fund manager.

H&R; Block shares, however, fell 48 cents, or 2.1%, to $22.55.

A so-called warehouse credit facility issued to Option One by Lehman Bros. Holdings Inc. wasn’t renewed by Lehman when it expired June 28, H&R; Block said in a regulatory filing late Tuesday.

Cerberus agreed to buy Option One in April under terms requiring the mortgage unit to maintain warehouse lines of at least $8 billion.

“This leaves Option One skirting dangerously close to the line,” said Kathleen Shanley, an analyst at bond research firm Gimme Credit. “The company has little margin for error.”

A Cerberus spokesman couldn’t be reached for comment. Under the terms of the sale, the amount Cerberus pays will depend on Option One’s results since April.