Lone Star Denies Breach in Accredited Deal

Lone Star Fund V (U.S.) LP, Dallas, denies it is in breach of its obligations to purchase Accredited Home Lenders Holding Co., San Diego.The company has made a formal legal filing in response to Accredited's lawsuit of Aug. 13 seeking to force Lone Star to complete the tender offer for the nonprime wholesaler. In its counterclaim, Lone Star said Accredited has suffered a material adverse effect and has materially breached other obligations and that Lone Star is entitled to terminate the merger agreement. Lone Star claims Accredited's only contractual remedy is the payment of a reverse break-up fee of $12 million. Meanwhile Accredited has agreed to trade $1 billion of loans under a 90-day purchase agreement with an unnamed investor at an advance rate comparable to the advance rates it receives from its warehouse lenders. The initial settlement of an approximately $500 million pool occurred on Aug. 17. Accredited at its discretion can repurchase of all the traded loans through mid-November 2007 at a premium to the advance rate. "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 Accredited chairman and chief executive James Konrath. The deal takes away Accredited's exposure to margin calls on these loans.