S&P lowers H&R Block

Standard & Poor's said it lowered its counterparty credit rating on H&R Block Inc. to BBB-/A-3 from BBB+/A-2 and removed these ratings from CreditWatch negative, where they were placed March 16. This rating action also applies to Block Financial Corp., a wholly owned subsidiary.

The outlook is negative.

The agency said the downgrade reflects its concerns regarding the company's planned disposition of its Option One subsidiary; significant additional losses incurred by mortgage operations since the end of fiscal 2007; increased debt and decreased funding flexibility; and weakened capital position.

Given the turmoil in the mortgage markets, S&P believes there is a high probability that H&R Block's deal to sell Option One to Cerberus Capital Management may not occur as originally planned.

Outside of mortgage operations, the agency said it remains positive about H&R Block's core tax and business services operations.

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