Accredited Home Lenders Holding Co. has salvaged a deal to be acquired by a Texas-based fund, albeit at a lower price. The latest agreement resolves pending litigation but leaves uncertain how Accredited plans to operate in a devastated subprime market.
The San Diego-based company reached an agreement with Lone Star U.S. Acquisitions LLC to lower the acquisition price to $11.75 per share from an original offer of $15.10, according to an announcement Tuesday. Lone Star has reportedly deposited nearly $300 million with The Bank of New York Mellon to fund the deal.
"The amended merger agreement eliminates most of the original merger agreement's conditions to closing the amended tender offer," the statement said. "Lone Star's obligation to close the amended tender offer is not subject to any conditions related to the accuracy of representations or warranties made by Accredited, to the absence of a material adverse change, or to the compliance by Accredited with negative covenants, other than limited negative covenants specifically identified in the amended merger agreement."
Lone Star tried to back out of the original deal, prompting a lawsuit by Accredited. It then attempted to push the price down to $8.50 per share -- which the subprime lender rejected.
With the latest agreement, the two companies settled the pending lawsuit filed by Accredited last month.
"Accredited and Lone Star have agreed to an immediate stay of the lawsuit filed by the company in the Delaware Chancery Court," the announcement stated. "The lawsuit will be dismissed with prejudice immediately upon the payment for shares."
Lone Star will provide $49 million in financing for Accredited, of which around $34 million will be used to pay creditors.
The amended agreement extends the expiration date to 10 days following Accredited's filing of an amended Solicitation/Recommendation Statement with the Securities and Exchange Commission, the press release said. Lone Star can nix the deal if more than half of Accredited's outstanding shares are withdrawn from the tender offer.
Once the acquisition does close and wholesale loan originations are restarted (retail operations were shut down last month), it is not clear what business model Accredited will operate under. The secondary market for subprime mortgages has evaporated, the purchase money market has greatly diminished and Accredited's surviving competitors are abandoning all but conforming originations.