Subprime lender Accredited Home in $400 million buyout

By Jonathan Stempel

NEW YORK (Reuters) - Accredited Home Lenders Holding Co. LEND.O, a struggling subprime mortgage lender, has agreed to be acquired by private equity firm Lone Star for $400 million, the companies said on Monday.

The transaction values Accredited Home at $15.10 per share, a 9.7 percent premium over its Friday closing price. The price is 72 percent below the stock's 52-week high of $53.45, set one year ago, but four times above its March 13 trough of $3.77.

Accredited Home, which cut 1,300 jobs in the first quarter, is one of many providers of home loans to people with poor credit histories who have struggled with rising losses and mounting defaults.

The sale comes two months after the San Diego-based company said it was exploring a merger, and that auditor Grant Thornton LLP had resigned. Accredited Home recently obtained a $230 million loan from hedge fund Farallon Capital Management LLC.

"It's not a surprise, given the state of the industry," said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York. "Private equity firms are gravitating toward subprime in anticipation the industry will turn." Howlett called the valuation "fair."

Accredited Home shares closed up $1.36, or 9.9 percent, at $15.12 on the Nasdaq. Shares of NovaStar Financial Inc. NFI.N, another subprime lender up for sale, rose 5.6 percent.

Private equity firms typically buy companies, restructure their businesses, and sell them. Dallas-based Lone Star said it has raised $13.3 billion since its 1995 founding.

"An alliance with a strong partner is, we believe, the best alternative to ensure the long-term success of the company," Accredited Home Chief Executive James Konrath said in an e-mail to employees. "Accredited can go forward with its business as before, but with greater access to capital and resources."

The transaction is expected to close in the third quarter. Top Accredited Home executives will keep their current roles. Accredited Home will pay a $12 million fee if the merger falls apart, according to the merger agreement.

A Lone Star representative declined to comment. Accredited Home did not return a call seeking comment.

Farallon, which said it had a 9.99 percent Accredited Home stake, said it is no longer pursuing talks to buy the company, according to a U.S. Securities and Exchange Commission filing.

Accredited Home cut 1,300 of its 4,200 jobs in the first quarter as lending volume sank 47 percent and delinquencies tripled. Results also suffered from the company's October purchase of Los Angeles subprime lender Aames Investment Corp.

Dozens of subprime lenders, including New Century Financial Corp. NEWCQ.PK, have quit the industry or gone bankrupt in the last year.

"It's the end of the specialty mortgage player, for now," Howlett said. "You need a big balance sheet to compete, and diversified sources of funding. It's everything the pure subprime lenders don't have."

Bear Stearns & Co., Friedman Billings Ramsey Group Inc., Houlihan Lokey Howard & Zukin and the law firms Dewey Ballantine LLP and Morris, Nichols, Arsht & Tunnell LLP advised Accredited Home. Piper Jaffray & Co. and the law firm Sullivan & Cromwell LLP advised Lone Star.