June 4 (Bloomberg) -- Accredited Home Lenders Holding Co., the subprime mortgage lender that raised doubts about its survival, will be sold to private-equity firm Lone Star Funds for about $400 million in cash.

Lone Star agreed to pay $15.10 a share for Accredited, the companies said in a statement. The offer for San Diego-based Accredited is 9.7 percent more than the stock's closing price last week. Dallas-based Lone Star, which oversees $13.3 billion, often targets distressed real estate and finance companies.

The stock tumbled as low as $3.77 in March as defaults on subprime mortgages, made to borrowers with poor payment histories, saddled Accredited with losses and spurred bankers to curtail credit for new home loans. Private-equity firms and hedge funds are buying subprime lenders including ResMae Mortgage Corp. at beaten-down prices and plan to sell when the market recovers.

``Now they have a parent that probably can get them funding through most crises,'' said Bose George, an analyst at KBW Inc. in New York who follows Accredited. ``Down the road they'll be able to make the decision whether they can compete alone or need to merge with some larger entity.''

The shares rose $1.36, or 9.9 percent, to $15.12 at 4 p.m. New York time in Nasdaq Stock Market trading. They traded as high as $15.44 on speculation a better bid might emerge.

Riding the Cycle

``This agreement is the best alternative available to protect shareholder value,'' Chief Executive James Konrath said in the statement. ``In Lone Star, we have found a partner who has a record of helping companies like ours successfully address financial and operational challenges.''

Lone Star, founded in 1995 and run by John Grayken, has bought entire companies as well as non-performing loans and real estate, according to its Web site. The fund tries to take advantage of ``the tendency of the banking system to cyclically over-finance and then under-finance the property and other sectors.''

The firm has agreed to buy stakes in banks and lenders in South Korea, Japan and Germany, including a $429 million purchase of Japan's Korakuen Finance Co. announced in September. It also agreed last August to pay about $620 million for Lone Star Steakhouse & Saloon Inc., a 260-restaurant chain based in Wichita, Kansas, with no previous tie to the investment company.

Korean Bank Probe

Lone Star's $1.45 billion purchase in 2003 of a 50.5 percent stake in Korea Exchange Bank, South Korea's fifth-biggest bank, has ensnared the U.S. company in government probes. Prosecutors are investigating whether Lone Star deliberately understated the bank's financial strength before the purchase. Grayken, who has ascribed the charges to an ``anti-foreigner'' political climate, scrapped a plan last year to sell the bank for $6.8 billion to Kookmin Bank, the country's biggest lender.

Accredited will be bought through Lone Star Fund V LP, which was formed in September 2004 and has $5 billion in capital commitments. Len Allen, president of Lone Star's U.S. operations, said in the statement that Accredited will now be able to ``manage through current industry dynamics.''

Rick Howe, an Accredited spokesman, didn't immediately return a call for comment. Ed Trissel, a spokesman for Lone Star, said executives weren't available.

``Of all the subprime lenders that were growing pretty quickly over the last few years, Accredited probably had the best reputation,'' said George at KBW. ``Given that this industry is going to continue in a much smaller form, these guys are probably a good management team to go with.''

Shares of rival mortgage lenders also rose today. NovaStar Financial Inc. added 5.6 percent, IndyMac Bancorp advanced 4.4 percent and Impac Mortgage Holdings Inc. gained 4.5 percent.

Back From the Brink

Accredited operates nationwide and ranked 14th last year among U.S. subprime lenders with $15.8 billion in loans and a 2.6 percent market share, according to Inside Mortgage Finance, an industry publication.

The lender had a market value of more than $1 billion a year ago before the subprime mortgage industry began to swoon. In March, the company said auditor Grant Thornton LLP wasn't sure Accredited would survive. Grant Thornton quit in April.

The sale to Lone Star means Accredited will avoid the fate of rivals such as New Century Financial Corp., the biggest independent U.S. subprime home lender last year, which went bankrupt in April and now is being liquidated. At least 50 mortgage companies have halted operations, gone bankrupt or sought new owners since the start of 2006.

Hedge funds have been among the buyers, with Citadel Investment Group planning to seek approval from a bankruptcy judge tomorrow for its $180 million acquisition of ResMae.

Cash Crunch

Accredited had faced a cash crunch as creditors including Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. demanded it cover losses on mortgages that went sour.

To help fend them off, Accredited got a $230 million five- year loan in April from the hedge fund Farallon Capital Management LLC and hired investment bankers at Bear Stearns Cos. to help explore ``strategic alternatives,'' including a sale.

The loan accord guaranteed Farallon a $14 million payment if the debt was paid off within the first year. Farallon also got options to buy 3.23 million shares at $10 each, which may produce a gain of about $16.5 million.

Farallon may not have fared so well on the 1.77 million shares it had accumulated as of March 10 at a cost of about $52.3 million, based on securities filings. The buyout values those shares at about $26.7 million.

Mary Beth Grover, a spokeswoman for San Francisco-based Farallon, declined to comment.

Second Curve

Other investors included Thomas Brown's Second Curve Capital LLC, the largest shareholder with about 2.83 million shares as of April 24. Brown bought at least 2.15 million of those shares between Jan. 1 and Feb. 9, when the stock was trading above $25, based on filings. Brown didn't immediately respond to a call and e-mail message seeking comment.

Accredited still hasn't filed its annual report with regulators and last month announced that its first-quarter filing also will be delayed.

The company said May 11 it will report a ``significant loss'' in the first quarter because it issued about half as many mortgage loans compared with a year earlier. The company originated $1.9 billion in loans in the quarter, down 47 percent from the same period last year.

The workforce was cut 31 percent to 2,900 in a bid to reduce costs, the company said last month. Accredited employed 3,164 people as of September, according to data compiled by Bloomberg.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: June 4, 2007 16:29 EDT