Tuesday, April 03, 2007

Accredited Home Lenders

The Midnight Trader (through my Fidelity) reports that LEND has lined up financing--to the tune of about $1.8B. Their auditors have resigned--so no audit for 2006. Here's a paragraph from the SEC filing:

"Item 4.01 - Changes in Registrant’s Certifying Accountant.

On March 27, 2007, Grant Thornton LLP (“Grant Thornton”), the registered independent public accounting firm for Accredited Home Lenders Holding Co. (the “Company”), verbally advised the Company and the Audit Committee of the Board of Directors of the Company (the “Audit Committee”) of its resignation as the Company’s independent auditors. Grant Thornton further advised that it declined to complete the audit of the Company’s financial statements for the year ended December 31, 2006. On March 30, 2007, Grant Thornton provided the Audit Committee with a letter dated March 27, 2007 regarding its resignation as the Company’s independent auditors. A copy of that letter is attached as Exhibit 16.1 hereto."

The stock closed at $8.48 and is trading at $9.51 after hours. They are evaluating their strategic alternatives.

As you probably know, Fallon Farallon has stepped up to the plate. Here is the the profile of their current holdings. Between their accounts and their managed accounts, they have a total of $52.3M which as of yesterday's close was worth about $15M for a stunning 71% loss. I lifted this information from the filing which you can review for yourself here.

I suppose, then that they had plenty of incentive for Fallon Farallon to get in there and salvage something.

Here are some of the loan terms that you might find interesting. Note the non-default interest rate of 13% and the default interest rate of 17%.

The loan doc is crafted so that there are minimums for liquidity. So the REIT's dividend as well as any federal tax refund for 2006 and 2007 will serve as collateral should liquidity levels fall below stated requirements.
These are just a few salient points that you might find of interest.

It's also worth noting that Accredited bough Aames Capital--who was in the same business of sub-prime mortgages.


MarkM said...


Did you see this article about the CDO market essentially being "on hold"?


Did you see the Credit Managers Association piece about widespread deterioration in conditions?


Leisa said...

Mark--I'm not sure how I missed this article. I'm grateful to see more qualified folks write about this stuff. The interest rate spread more than doubled from +3 to +7--That means to me--and please correct me if I'm wrong, that there are going to be lots of nasty mark to markets unless that was a hedged risk. I'm willing to bet that it wasn't for some.

Did you also notice the increased credit support requirements? I'm grateful to see that I drew the correct conclusions from my research. I'm only now beginning to see these issues more widely reported on, and from that research I'm able to understand the implications of these stories.

MarkM said...

Apologies in advance for this ridiculously long post. I don't have a link to this article. This is from a comment from Roubini's blog.

"Credit index poll points to business cash flow problems
Author: RP news wires

Businesses in both the service and manufacturing sectors have been particularly hard hit by the nation's economic slowdown, continuing the decline in a major credit index produced by the National Association of Credit Management.

The seasonally adjusted Credit Manager's Index (CMI), released April 2, fell in March for the seventh time in eight months, losing 1.6 percent. According to commentary and analysis from Dan North, chief economist for global accounts receivable management service provider Euler Hermes ACI, the decline was driven by the dollar collections component which fell a record 7.8 percent, "but the weakness was widespread,” he said. "Even without the drag of the dollar collections component, the combined index would have fallen, as a total of eight out of the 10 components fell.” Collections problems also appeared in the accounts placed for collection component, which is now below the 50 level, signaling economic contraction.

"Weakness in collections suggests that businesses are having cash flow problems, reflecting the erosion of the economy as a whole,” North continued. He believes that credit managers are starting to feel the effects of a deflating housing bubble and a slowdown in the economy caused by the Federal Reserve's monetary tightening. This is evidenced by businesses in both services and manufacturing that have been particularly hard hit by the slowdown in construction spending and the dramatic fall-off in the demand for building materials.

"With the median price of existing homes falling for seven consecutive months on a year over year basis, it would appear that the effects of the bursting housing market bubble will continue for some time,” he said. "In the meantime, the plethora of negative data from the first two months of 2007, such as weak job growth, a dramatic fall in durable goods orders, slack retail sales, and of course deteriorating conditions in the sub-prime mortgage market, all reflect an economy is surely going to continue slowing.”

The deflation of the housing bubble has been seen as a factor in slowed consumer spending, which is sending shockwaves throughout the economy and causing falling stock prices on Wall Street.

"As of January 2007, asset value equivalent to 15 percent of GDP has disappeared from the housing market,” North said. "This fall in value will not only cause defaults to rise and credit conditions to deteriorate, but it also will destroy some of the equity built in the past few years, equity that has fueled consumer spending. The consumer accounts for two-thirds of all economic activity, so a faltering consumer will surely lead to a faltering economy. On a more intuitive level, asset value equivalent to 15 percent of GDP simply cannot disappear without significantly affecting the economy.”

In a recent commentary, North compared the current housing slowdown to the popping of the stock market bubble in 2000. That analysis is available upon request.

Sector by sector analysis of the CMI follows:

Manufacturing Sector

The manufacturing sector fell 3.0 percent, driven by a massive fall in dollar collections of 10 percent. However, the weakness was also pervasive as seven of the 10 components fell, and even without the fall in dollar collections the index would have fallen 2.2 percent. Comments from survey respondents point to an "economic slowdown in (the) homebuilding industry,” "customers … demanding longer payment terms,” and businesses "affected by Housing Starts downturn.”

Service Sector

The service sector fell 0.2 percent, also driven by a steep drop in dollar collections of 5.5 percent. Suppliers of building materials seem to be particularly hard-hit. One respondent stated that the decline in the housing market has reduced "our volume 50 percent.” And another is engaging in the somewhat risky practice which started the woes in sub-prime mortgages, stating that, "We are starting to take on credit for people that are less creditworthy than we have before.”

March 2007 vs. March 2006

On a year-over-year basis, the combined CMI fell 3.1 percent as both the services and manufacturing sectors declined. Although all of the indexes remain above the 50 level, indicating economic expansion, their erosion over the past 12 months reflects an economy which has been on the wane, and one which is now likely to weaken even more rapidly.

A complete view of the CMI can be viewed online at www.nacm.org.

Written by John Ryskamp on 2007-04-03 14:56:17"

Gemma Star said...


Thanks for your "ridiculously long


Leisa said...

Mark--terrific stuff thanks. Does the market care? No. Sigh.

MarkM said...

I wasn't at all surprised by yesterday's rally given the bullish tone and finishes of Friday and Monday. But I had to be away most of the day so I had hedges on. Instead of making a quick percent I only ended up with a quarter. That's all I was willing to risk given the fact that the housing number COULD have been a stinker but wasn't. Wanna bet it gets revised down? Also that bar was set REAL LOW and I suspect that is the game The Street is now going to play with EARNINGS. They are already revising them down to 4-5% growth and no one seems to care.