In a delayed annual report filed today, Accredited Home Lenders Holding Co. painted a bleak picture of current and future operating conditions. The company said employee morale is shot, executives have been sidetracked with the integration of a recently acquired company and the prospects for its continued survival are in doubt.
In an 8-K filing with the Securities and Exchange Commission, the San Diego-based lender reported its 2006 financial data and talked about the challenges it currently faces.
Accredited, founded in 1990, said 12,600 mortgage brokers generated 85 percent of the $15.8 billion it funded in 2006 while its own loan officers originated 15 percent. The company's 10 biggest brokers originated 6 percent of last year's volume.
The number of warehouse lenders used by Accredited has dwindled to three last month from eight last year -- with current lending capacity at $1.7 billion, according to the filing. It is operating under several waivers now and, if it fails to obtain additional waivers on any single line, then defaults on other facilities could be triggered.
"The occurrence of such events would have a material and adverse impact on our ability to fund mortgage loans and continue as a going concern," the filing said.
The company said it also faces the possible revaluation of underlying collateral -- which would trigger margin calls on one day's notice.
Accredited reported its employee count dropped from 4,200 on Dec. 31, 2006, to 2,700 as of May 31, 2007. The remaining group is operating in an environment of declining morale.
"The challenges we face to retain qualified management personnel may be extremely disruptive to our business," the statement said. "In addition, if a manager leaves our company there is an increased likelihood that other members of his or her team will follow."
Accredited noted it relies on just a few key executives, none of whom are bound by an employment contract, and cannot assure that they will remain at the company -- although there appears to be little demand right now for subprime mortgage executives.
The company has been struggling with its October 2006 acquisition of Aames Investment Corp.
"The process of integrating operations has caused and continues to cause an interruption of, or loss of momentum in, the activities of our business," Accredited said in the filing. "Members of our senior management have devoted and may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business, service existing borrowers and vendors, attract new borrowers and develop new products or strategies. If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer."
A pending acquisition of Accredited by a Loan Star Fund affiliate, which was supposed to be done in July, is still subject to a number of conditions that may or may not be met, the report indicated. With Accredited shares trading at just $5 a share today, investors apparently don't see the $15.10-a-share deal as likely to happen.
The company spelled out many other risks it faces and explained that any number of them could impair its ability to continue in business.
"We face significant challenges due to adverse conditions in the nonprime mortgage industry, and we cannot assure you that we will continue to operate as a going concern," the report said.