San Diego, CA-based Accredited Home Lenders indicated Tuesday that without the completion of its planned merger with Lone Star Funds, the company could possibly face bankruptcy.
In its delayed first-quarter report filed Tuesday with the SEC, the subprime mortgage lender said, “It is uncertain whether our liquidity, credit facilities and capital resources will be sufficient to fund our operations pending the return of favorable market conditions.”
About a month ago, Accredited Home Lenders stopped taking loan applications, halted nearly all retail lending, half of its wholesale lending operations, and laid off roughly half of its staff at company headquarters, eliminating 1,600 of 2,600 jobs.
“We face significant challenges due to adverse conditions in the non-prime mortgage industry, and we cannot assure you that we will continue to operate as a going concern,” the quarterly report said.
The news may give Lone Star Funds a better chance to sever its takeover agreement, which has been a drama-filled affair over the last few months.
Accredited has spent much of its energy fighting to keep the buyout in place whereby Lone Star Funds would complete a $400 million takeover, valuing Accredited at $15.10 per share.
However, Lone Star argued that Accredited wasn’t able to meet certain requirements of the deal, forcing the offer down to $8.50 per share, which Accredited quickly rejected.
According to the SEC filing, Accredited has filed suit in “Delaware Chancery Court seeking to enforce Lone Star’s obligations to close the tender offer and complete the merger.”
The trial is scheduled to begin on September 26, 2007.
Accredited posted a first-quarter net loss of $260.2 million, or $10.29 a share, compared with year-ago net income of $35.8 million, or $1.61 a share.
The mortgage lender lost $178.9 million on mortgage sales, versus a prior-year profit of $70.6 million, while revenue rose a slight 0.4% to $195.3 million.
Accredited made $15.8 billion in home loans last year, before subprime woes began to take their toll, and blamed their recent losses on the increasing difficulty in selling mortgage-backed securities.
Shares of Accredited dropped 45 cents, or 4.38% to $9.83 in midday trading on Wall St.