NEW YORK -(Dow Jones)- For the second time in under a week, banks have balked at fully financing a planned corporate buyout, throwing the deals' fates into jeopardy.

The latest possible casualty is PHH Corp. (NYSE:PHH) (PHH), which said Monday that the Wall Street banks that had agreed to underwrite Blackstone Group's (NYSE:BX) (BX) buyout of PHH's mortgage business have "revised (their) interpretations" of the debt financing that was supposed to be available in the deal. As a result, PHH said, the $1.8 billion buyout could get $750 million less funding than anticipated and might not be completed.

Last week, Reddy Ice Holding Inc.'s (FRZ) planned $1.1 billion buyout by GSO Capital Partners LP encountered turbulence, when Morgan Stanley (NYSE:MS) (MS) objected to amendments to the deal saying they violated conditions of the bank's loans. The protest raised the possibility that the Wall Street firm might back out of the $ 855 million in debt financing it agreed to provide.

The maneuverings come as Wall Street banks are increasingly concerned about getting stuck holding roughly $350 billion in buyout-related debt. Investors who once lined up eagerly have largely stopped buying amid a wave of risk-aversion. For example, banks were trying Monday to sell just $5 billion of the $13 billion in loans to fund Kohlberg Kravis Roberts' planned acquisition of First Data Corp. (NYSE:FDC) (FDC), and even that will require selling the loans at a discount.

For large buyouts of companies like First Data, banks are scrambling to tinker with terms to make the debt more palatable to investors. But when it comes to some smaller deals, the PHH and Reddy Ice (NYSE:FRZ) cases suggest banks may be taking a tougher line and making full use of any legal or financial opportunities to escape funding commitments for deals that appear risky.

"The banks may be finding it a little easier to renegotiate or walk away from the lower-profile deals," said Howard E. Steinberg, a partner with law firm McDermott Will & Emery. With smaller buyouts, he said, banks are less wary of hurting their reputations or relations with clients by pulling back on funding commitments.

While the smaller deals didn't generate the headlines - or investment-banking fees - that accompanied big-ticket buyouts, they together will require significant funding. According to Thomson Financial, about $40 billion worth of deals with values of less than $5 billion are currently in the pipeline awaiting debt financing. Among the largest: Warburg Pincus' $4 billion acquisition of Bausch & Lomb Inc. (NYSE:BOL) (BOL), Cerberus Capital's $4 billion deal for United Rentals Inc. (NYSE:URI) (URI) and the $2.9 billion buyout of Acxiom Corp. (NASDAQ-NMS:ACXM) (ACXM) by Silver Lake Partners and ValueAct Capital Partners.

Shareholders are caught in the middle. Both PHH and Reddy Ice's (NYSE:FRZ) shares got hit following the disclosures about the banks' new positions. PHH shares were down 13% Monday afternoon, while Reddy Ice (NYSE:FRZ) stock has fallen nearly 6% since Wednesday.

Banks' growing assertiveness with small deals isn't limited to private equity buyouts. Last week, questions arose over Finish Line Inc.'s (NASDAQ-NMS:FINL) (FINL) $1.5 billion agreement to buy Genesco Inc. (NYSE:GCO) (GCO) when UBS AG (NYSE:UBS) (UBS), which is underwriting the acquisition, raised the possibility that it would back out if Genesco (NYSE:GCO) is found to have suffered a serious downturn in its financial health.

In some ways, the PHH deal seemed a prime target for banks to balk, since the company has been hard hit by the implosion of the mortgage industry. An industry slowdown was a key reason banks and private equity sponsors last month renegotiated their agreement to buy Home Depot Inc.'s (NYSE:HD) (HD) supply unit.

In the PHH deal, inked in March, General Electric Co. (NYSE:GE) (GE) is buying the entire Mount Laurel, N.J., company and then selling the mortgage business to a Blackstone affiliate, Pearl Mortgage Acquisition 2 LLC, for about $1.8 billion.

JPMorgan Chase & Co. (NYSE:JPM) (JPM) and Lehman Brothers Holdings Inc. (NYSE:LEH) (LEH) had agreed to provide Pearl with up to $1.8 billion in credit lines to finance the deal, according to regulatory filings. The banks also agreed to provide a mortgage loan repurchase facility of up to $4 billion to fund PHH's day-to-day operations. In addition, Pearl is supposed to publicly issue up to $300 million in notes, but the banks agreed to provide an additional $300 million credit facility if those notes don't get sold.

Pearl must pay a $50 million breakup fee if the deal doesn't close due to lack of financing, according to the filings.

In its statement Monday, PHH said it was informed by Pearl that JPMorgan and Lehman had "revised interpretations as to the availability of debt financing" under the agreement. The statement didn't elaborate on the banks' position. A JPMorgan spokesman had no immediate response. Lehman and PHH didn't respond to requests for comment.

The banks' new stance "could result in a shortfall of up to $750 million in available debt financing" compared with what was committed when the takeover deal was announced March 15, Pearl said, according to PHH's statement. The Blackstone entity said it disagrees with the banks' interpretation and will try to secure the funding, from the banks or alternate sources, but acknowledged "it is not optimistic" that it will succeed.

Some observers were surprised that JPMorgan and Lehman would play hardball with Blackstone, a top-tier buyout shop that generates millions of dollars in advisory and underwriting fees for the banks. JPMorgan and Lehman, for example, were both among the underwriters of Blackstone's initial public offering this summer.

The banks "run the risk that some place down the road, they will pay for it," said Kevin O'Mara, a mergers and acquisitions lawyer at Cadwalader Wickersham & Taft, because buyout firms like Blackstone might take their business elsewhere. "These guys have long memories."

-By David Enrich, Dow Jones Newswires; 201-938-2123; david.enrich@dowjones.com

(Kevin Kingsbury contributed to this article.)

    (END) Dow Jones Newswires   09-17-07 1553   Copyright (c) 2007 Dow Jones & Company, Inc.