Accredited Home Lenders, struggling to push through its takeover by the Lone Star private equity firm, will sell $1 billion of loans at a probable loss to fend off creditors as the mortgage debt market worsens. The company said it will sell the loans to an unnamed investor in exchange for the right to buy them back at a higher price, thereby protecting that portion of the portfolio from depreciation. Fox-Pitt Kelton analyst Matthew Howlett estimates Accredited is selling the loans at a loss in the area of $0.93 on the dollar. Mortgage debt has lost great value this year, prompting lenders' bankers to demand either collateral or their money back. As a result, over 50 mortgage lenders, including two in the country's top 10, have entered Chapter 11 this year. With the transfer, Accredited will no longer be accountable to its creditors for this portion of its debt if it declines further in value. "If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them," said CEO James Konrath. "Clearly they're trying to maintain liquidity and remain an operating company until the [Lone Star] deal closes," said Keefe, Bruyette & Woods analyst Bose George, who rates the loan deal a "marginal" positive. Accredited still has $600 million of loans not covered by the agreement.
Sources: Forbes, Bloomberg, MarketWatch
Commentary: Lone Star Files Counterclaim Against Accredited Home • Lone Star, Accredited Deal is Still On - For Now • Accredited Home Sues Lone Star
Stocks/ETFs to watch: LEND. Competitors: FNM, FRE
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.