Accredited Home Lenders Holding Co. has sued private equity firm Lone Star Funds to force it to complete a $400-million takeover of the unprofitable sub-prime mortgage lender.
Shares of Accredited tumbled $3.09, or 35%, to $5.82 on Monday after Lone Star said late Friday that it would not go through with its $15.10-a-share buyout, citing a "drastic deterioration in the financial and operational condition of the company."
But San Diego-based Accredited said the buyout pact prohibited Lone Star from backing out for that reason. Accredited said that if shareholders tendered more than half of the company's outstanding shares by Tuesday, all deal conditions would be met.
"Lone Star's refusal to accept tendered shares is a clear repudiation and breach of the merger agreement," Accredited said in a complaint filed Saturday with the Delaware Chancery Court.
Sub-prime lenders, which make home loans to people with weak credit histories, have struggled with investors' refusal to buy loans they make. Dozens of sub-prime lenders have quit the industry this year.