Tuesday, August 14, 2007

Accredited buyout fails, lender to sue Lone Star

In June, an investment fund called Lone Star proposed to buy Accredited Home Lenders for $15.10 per share. The stock traded at $14-15 at the time, so the price sounded reasonable. Now that shares of Accredited have plunged to well below $10, Lone Star is looking to pull out of the deal. It announced on Friday that deterioration in the market and Accredited’s “financial and operational condition” has prompted a default on the buyout agreement. The mortgage lender filed a lawsuit seeking to “hold Lone Star to its obligations”. The buyout firm then issued a statement saying it can present facts showing that Accredited has failed to satisfy contract conditions and it is looking forward to providing this information in court.

It was widely speculated that Accredited will not be able to continue operations if Loan Star doesn’t proceed with the deal, but the lender seems to believe it will remain operational regardless. According to analysts, the most likely outcome of the situation will be a renegotiation of the terms. It seems, however, that Lone Star would rather prefer to walk out of the deal altogether. This sounds like an interesting case, we’ll be looking forward to more news from Accredited.


Keith Gregory said...

There was news some time back that some class action lawyers were taking on Accredited for not getting enough on the deal from Lone Star.

I blogged that they were crazy- that if they got $15 they should run with it:


If you gave me $400MM cash in this market, I would say to organically build your own lender- there is a ton of laid off talent out there, and the secondary market conditions are not favorable for giant, leveraged non depositories like Accredited.

Its amazing how this mortgage banks can just dissolve. But the truth is, they are made of little more than cash and talent- and when the cash leaves, you've got to part ways with the talent.

Angelina Colquit said...

Well, I guess they wanted a fully operating company so they wouldn't have to set up a new one and go through the whole trial-and-error process. $15 a share was a great price even back then; today it sounds quite unrealistic not only for Accredited, but almost any lender. Thank you for the link.

If it wasn't for tight credit the lending business would still be thriving. There's much more demand than supply right now.