Lone Star Funds, a private equity operation, prides itself on its ability to figure out when markets have overreacted and driven down prices to unreasonable levels. In June, it stepped in to buy Accredited Home Lenders, a troubled sub-prime mortgage lender. (Is that redundant?)
Today Accredited finally put out its delayed 2006 annual report. (It had to change auditors first, after the previous ones quit.) It includes this paragraph:
In connection with the challenges facing the non-prime lending industry, several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws. Unless the values of our mortgage products cease their decline, and we are able to obtain new sources of liquidity and waivers and modification of the covenants in our credit facilities, we may suffer a similar fate.
Lone Star has not had anything to say, but Accredited’s stock fell to $5.31 a share, about a third of the price Lone Star has promised to pay
Of course, in this credit market, you can’t be sure that a private equity firm could fund such a takeover anyway.
In other mortgage bad news, IndyMac has told its employees “the private secondary market is not functioning” and it will be much more discerning in making loans in the future. And American Home Mortgage, whose problems came from mortgages that were not sub-prime, said it will close. In April, it sold shares to the public for $23 and change. Now they will be worthless. (In Friday’s Times, I look at the accounting games American Home played, and the evidence that some stock traders knew what was happening before the company disclosed its problems a week ago.)
