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Lone Star acquires sub-prime lender for $400m

Taking advantage of the downturn in the sub-prime market, the Dallas-based private equity firm has acquired Accredited Home Lenders for $400m.

Lone Star Funds has acquired sub-prime lending company Accredited Home Lenders for $400 million (€305 million).

Under the terms of the deal, Lone Star is paying $15.10 per share for the NASDAQ-listed company, representing a 9.7 percent premium to the stock’s closing price on the day prior to the announcement. The acquisition price is 72 percent lower than the stock’s 52-week high of $53.45, but still well above its March 2007 low of $3.77.

“We share the Accredited team’s vision for the company and their diversified approach to the non-prime market,” Len Allen, US president of Lone Star, said in a statement. “With our additional experience and capital, we are confident that Accredited can successfully manage through the current industry dynamics and leverage the platform.”

In March, Accredited received a $200 million loan from San Francisco-based hedge fund Farallon Capital Management.

The sub-prime sector in the US has been hit hard recently, with firms like New Century Financial filing for bankruptcy as the residential housing market has cooled and defaults among the riskiest borrowers increasing. Following a downturn in the market earlier this year, distressed investors have been actively eying the sector.

The investment is coming out of the fifth Lone Star vehicle, Lone Star Fund V, which raised $5 billion.