Lone Star extends deadline as it is sued by buyout target

The Dallas-based private equity firm is being sued by Accredited Home Lenders after it said Friday it may back away from its previously agreed $400 million buyout of the subprime mortgage company. Lone Star has extended the tender deadline.

Lone Star, a Texas-based private equity firm, is extending its tender offer for all outstanding shares of common stock of Accredited Home Lenders until midnight on 28 August, it said in a filing with the US Securities and Exchange Commission.

According to the agreement between Lone Star and Accredited, so long as one or more conditions to the closing of the tender offer remain unsatisfied, Lone Star is required, upon the request of the company, to extend the tender offer period for no more than ten business days.

In a regulatory filing on 10 August, Lone Star said the company would fail to satisfy conditions of the agreement, citing “drastic deterioration in the financial and operational condition of the company”. It said this was still the case.

Accredited Home Lenders, a San Diego-based subprime mortgage company, had yesterday filed a lawsuit to force Dallas, Lone Star to continue with a previously agreed $400 million (€292 million) buyout.

Accredited disputes the claim, noting in a statement that under terms of their merger agreement, trouble in the US subprime market that has not “disproportionately affected” the company does not enable Lone Star to walk away from the deal. The company said it intends to “hold Lone Star to its obligations, and to hold it fully responsible for any damages caused by its failure to satisfy those obligations”.

“The lengthy acquisition agreement made very explicit that deteriorating industry conditions or macroeconomic events were not sufficient cause for terminating the agreement,” Chris Brendler, an analyst with Stifel Nicolaus in Baltimore, told the San Diego Tribune. “It stated that as long as Accredited did not perform markedly worse than industry peers, the agreement would be binding.”

In a statement released in response to the lawsuit, Lone Star said it does not intend to purchase shares tendered at the end of the offer period today.

“Lone Star believes the facts will fully support its position,” it said, noting that it“ looks forward to presenting these facts in Delaware Court of Chancery“.
Agreed in June, the buyout would have been an investment made by the firm’s fifth fund, which closed in September 2004 with $5 billion in commitments. The fund targets financial and real estate assets including secured and corporate unsecured debt, portfolios of distressed real estate and financially-oriented operating companies.

Additional reporting by Nicholas Lockley