Farallon Offers Subprime Lender A Life Line

Mar 22 2007 | 12:26pm ET

After holding talks about acquiring subprime mortgage lender Accredited Home Lenders, Farallon Capital Management agreed to provide a $200 million loan to help the troubled lender deal with a credit crunch.

The San Francisco-based hedge fund, the fifth largest in the world with $26 billion in assets under management, is Accredited’s third-largest shareholder, owning about 7% of the company. The five-year loan is secured by Accredited’s assets at 13%. If the company pays the loan off in the first year, Farallon also gets a 7% premium, worth $14 million.

In addition, Accredited will issue 3.3 million warrants allowing Farallon to buy shares at $10 apiece over the next decade (Accredited shares were trading at $12.29 at press time). The warrants represent approximately 13% of Accredited’s current shares outstanding.

Farallon said in regulatory filings that acquisition talks occurred “within the last 10 days” and may be revived.

Farallon isn’t the only hedge fund heavyweight to take an interest in Accredited: Chicago-based Citadel Investment Group said yesterday it has taken a 4.5% stake in the San Diego-based lender.

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    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…