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Accredited is latest lender to be sold

A private equity fund agrees to acquire the sub-prime mortgage firm for $400 million.

June 05, 2007|Scott E. Reckard | Times Staff Writer

Accredited Home Lenders Holding Co., which had dodged the shutdowns and takeovers that gradually wiped out independent rivals in the sub-prime mortgage business this year, joined the list Monday by agreeing to sell itself to a Dallas-based private equity fund.

San Diego-based Accredited had been viewed as one of the best-managed specialists in loans to risky borrowers. But battered by losses, the company agreed to be acquired by an affiliate of Lone Star Funds that has been buying distressed real estate and financial companies.

The $400-million price tag is approximately the value on Accredited's balance sheet of the cash, loans, office equipment and other assets -- with little or no premium for the experience and talent of the employees, said Roth Capital analyst Rich Eckert in Newport Beach.

But the price beat those fetched by rivals such as New Century Financial Corp. and Option One Mortgage Corp. Option One, which hedge fund Cerberus Capital Management acquired from H&R Block, sold for about 75% of book value, Eckert said. New Century, which is being liquidated in bankruptcy, "couldn't even give away its loan origination business," he added, although it found buyers for its loans and customer-service arm.

The sub-prime lenders, many of them thinly capitalized, relied on Wall Street to fund them and buy their loans. They ran out of money this year amid a barrage of demands that they buy back defaulted loans.

With $5 billion in capital, the Lone Star fund acquiring Accredited "will let the business stabilize and ultimately sell it to a big commercial bank or an investment bank," Eckert said.

Representatives of Accredited couldn't be reached for comment. In a statement, Len Allen, Lone Star's president of U.S. operations, said, "With our additional experience and capital, we are confident that Accredited can successfully manage through the current industry dynamics."

Lone Star agreed to pay $15.10 a share in cash for all of Accredited's common stock. The shares shot up $1.36, or 9.9%, to $15.12 in reaction to the deal.

The sub-prime business is now dominated by diversified lenders such as Calabasas-based Countrywide Financial Corp. and San Francisco-based Wells Fargo & Co., which issue the majority of their mortgages to customers with good credit.

Accredited originated $15.8 billion in sub-prime mortgages last year, making it the 18th-largest issuer, said Friedman Billings Ramsey analyst Michael Youngblood. The company said in April that it was considering a sale. Last month it failed to file its first-quarter report with the Securities and Exchange Commission, warning of a "significant loss," compared with a $35.8-million profit a year earlier.

Orange-based ACC Capital Holdings, the leading independent sub-prime lender in 2004 and 2005, downsized sharply but stayed in business after Citigroup provided it with new capital in return for an option to buy ACC's Argent Mortgage and the servicing arm of its affiliate Ameriquest Mortgage Co.

Santa Monica banking firm Fremont General Corp. was forced out of the sub-prime business this year by the Federal Deposit Insurance Corp. and recently ceded management control to an investor group headed by a banking veteran who promised to return the company to traditional lending.

The sub-prime crunch has been especially hard in Orange County because it is home to so many sub-prime lenders. Employment in the county at nonbank mortgage originators fell 8.9% to 20,500 jobs in April from a year earlier, according to the Los Angeles County Economic Development Corp. Statewide, the drop was 5.1% to 89,500 jobs.

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