Accredited Home Lenders recommends shareholders tender shares; Lone Star says see you in court

By Lisa Kerner

Charlotte, N.C., Aug. 13 - Accredited Home Lenders Holding Co. filed a lawsuit against Lone Star Fund V (U.S.), LP and two of its affiliates obligating Lone Star to close its tender offer for Accredited and complete the merger with Accredited.

The suit stems from Lone Star's filing on Friday with the Securities and Exchange Commission alleging that Accredited would not satisfy the conditions to the closing of the tender offer. In addition, Lone Star said it did not expect to accept Accredited shares tendered at the offer's close at midnight ET on Aug. 14.

Accredited's board of directors continues to urge shareholders to tender their shares prior to the offer's close.

As previously reported, Lone Star Fund subsidiary LSF5 Accredited Investments, LLC extended the tender offer from its original closing date of July 16. About 8,210,568 shares, or 32.68%, of Accredited Home Lender's common stock were tendered as of the close of business on July 27.

Accredited agreed to be acquired by the Lone Star Fund affiliate for $15.10 per share in an all-cash transaction valued at $400 million. The outstanding 9¾% series A perpetual cumulative preferred shares of Accredited Mortgage Loan REIT Trust will remain outstanding. The transaction is slated to close in the third quarter of 2007.

Lone said in a statement released on Monday that "in light of the drastic deterioration in the financial and operational condition of the company, among other things" Accredited's closing conditions would not be satisfied. The Dallas private equity firm reiterated that it does not expect to accept shares tendered in the offer and the company looks forward to presenting its facts in court.

Regulatory approvals from states representing more than 95% of Accredited's loan production volume for 2006 have been received. Accredited believes that if more than 50% of its outstanding shares are tendered by the deadline all conditions to closing of the tender offer will have been met.

Under the companies' merger agreement, changes generally affecting the non-prime industry do not provide a basis for Lone Star to bail out of the deal, Accredited said in a company news release.

In addition, Accredited said under the agreement, Lone Star may not refuse to honor its obligations based on "any deterioration in the business, results of operations, financial condition, liquidity, stockholders' equity and/or prospects of the company."

Accredited noted that the lawsuit or a failure to close the tender offer will not cause a default under any of its warehouse facilities that currently have a total capacity of $1.6 billion for U.S. and C$150 million for Canadian loan originations. As a result, the company plans to continue to fund its mortgage loan originations.

On Aug. 10, Accredited noted that it had entered into an agreement that would resolve the class action lawsuit that had sought to enjoin the closing of the tender offer, Wan vs. Accredited Home, et al. The company and Lone Star entered into a memorandum of understanding with the plaintiff in the Wan case outlining a proposed settlement subject to court approval. The memorandum allows for the tender offer to be completed prior to a court decision on the settlement.

Accredited Home Lenders is a San Diego mortgage company, and Accredited Mortgage Loan REIT Trust is a Maryland real estate investment trust formed in May 2004.

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