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Accredited Home Lending Says Its Survival Is In Doubt

Accredited Home Lenders Holding,a subprime mortgage lender that agreed in June to be acquired, said its survival is in doubt and that bankruptcy is possible, sending its shares down as much as 52.5%.

In its delayed 2006 annual report filed Thursday with the U.S. Securities and Exchange Commission, San Diego-based Accredited said it could not guarantee it would remain a "going concern" as market conditions worsen for subprime lenders.

"Several of our competitors have recently stopped originating loans or sought protection under bankruptcy laws," Accredited said. "Unless the values of our mortgage products cease their decline, and we are able to obtain new sources of liquidity and waivers and modification of the covenants in our credit facilities, we may suffer a similar fate."

The decline raised speculation that Accredited might need to renegotiate its June 4 agreement to be acquired by private equity firm Lone Star. That transaction valued Accredited at $400 million, equal to $15.10 per share.

"It's not going to be $15.10," said Theodore Kovaleff, a senior bank and thrift analyst at Sky Capital in New York. "My expectation is there will be a renegotiation of the merger, for a price much closer to the market price now."

Accredited said it still expects to close the merger by the end of September. Spokesman Rick Howe did not immediately return a call seeking comment. Ed Trissel, a spokesman for Lone Star, declined to comment.

Dozens of subprime lenders, which make loans to people with weaker credit histories, have quit the industry this year as losses and defaults mounted. Several, including New Century Financial , have sought bankruptcy protection.

Accredited said it has suffered from the same problems as many rivals, exacerbated by its October purchase of Aames Investment, a Los Angeles subprime lender. It also said it faces "steeply declining" employee morale.

Squar, Milner, Peterson, Miranda & Williamson, which became Accredited's auditor in April after Grant Thornton resigned, also expressed concern about Accredited's prospects.

"If the merger is not consummated or market conditions deteriorate further, the company's financial and operational viability is uncertain," the auditor said. "The ultimate outcome of the merger is not presently determinable."

Accredited shares are falling as the housing slump deepens, hurting even lenders to borrowers thought to be better credit risks. One such lender, American Home Mortgage Investment , on Tuesday said it lost access to credit and may liquidate assets, sending its shares down 90 percent.

"There are a heck of a lot more subprime lenders available at fire-sale prices than two months ago," Kovaleff said. "Only Accredited knows what its inherent value is, and that will be a factor in its negotiating stance. If I were Accredited, I would have feelers out to other potential acquirers."

The Lone Star transaction calls for Accredited to pay a $12 million fee if the merger falls apart.

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