Shares of Accredited Home Lenders Holding fell 35.3% in regular trading Thursday after the company said it could be forced out of business. But the stock regained 25.4% in AH trading after it issued a statement noting its auditor did not include a "going concern" warning in its delayed 2006 annual report. The 10-K filing warned that if the company is unsuccessful in amending covenants with its lenders, subsequent defaults "would have a material adverse impact on our ability to fund mortgage loans and continue as a going concern." A "going concern" statement in regulatory filings is often seen as a precursor to bankruptcy. But when used by the company and not its auditor, it carries less weight. "Accredited's auditors never used the term 'going concern,'" Friedman, Billings, Ramsey analyst Scott Valentin said in an interview. "I think some reports earlier today read too much into the company's statement." Shares traded as low as $3.90, a 50% drop, and closed down over 35% at $5.31. In AH trading, after the follow-up statement, shares climbed over 25% to $6.70 -- still 18% below Wednesday's close. In June, Accredited agreed to be bought out by private-equity firm Lone Star for $400 million ($15.10/share); the merger is still pending. Shares currently trade well below the acquisition price as traders wonder whether the deal will be closed. Accredited's auditor referred to the Lone Star bid, saying that if it doesn't close, or if conditions deteriorate further, the company's viability is uncertain. Accredited said late Thursday it doesn't expect the need to obtain regulatory approvals will prevent the transaction from closing, and that it expects the tender offer to close in the third quarter. "It's now a foot race between getting regulatory approvals and trying to maintain liquidity," Valentin said, noting that if its financial woes start to concern regulators, it could make it more difficult to get approval.
Sources: 10-K filing, Press release, Wall Street Journal, MarketWatch
Commentary: Defining Two Camps Of Subprime Lenders • Accredited Home Lenders: Survival in the Quicksand of Subprime • Accredited Home Lenders, Maybe Not So Accredited [24/7 Wall St.]
Stocks/ETFs to watch: LEND. Competitors: FNM, FRE
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