March 5 (Bloomberg) -- Citadel Investment Group LLC agreed to buy ResMae Mortgage Corp. for about $180 million, beating out Credit Suisse Group in a last-minute auction for the bankrupt mortgage lender.

The Chicago-based hedge-fund manager will pay about $20 million for ResMae's lending business and 98.5 cents on the dollar for the company's $160 million loan portfolio, said Ron Greenspan, a financial adviser for ResMae's creditors. U.S. Bankruptcy Judge Kevin J. Carey in Wilmington, Delaware, said today he will sign an order approving the sale.

``Citadel stepped up and gave us a firm bid,'' said Greenspan, senior managing director in FTI Consulting's Los Angeles office. Credit Suisse, Switzerland's second-largest bank, had offered $19.1 million, plus 98 cents on the dollar for the loans, in a bid laced with conditions, he said.

The sale price is still less than half what Zurich-based Credit Suisse bid for ResMae as recently as December, illustrating the swift deterioration of finances at companies that specialize in home loans to borrowers with poor credit. Credit Suisse cut its offer from $55.3 million and rival suitors dropped out after Merrill Lynch & Co. demanded that ResMae refund more than $300 million for bad loans.

``Hooray for the good guys,'' Edward Resendez, ResMae's chief executive officer, said after today's court hearing in Wilmington. ``We are very happy with the outcome.''

Third Bankruptcy

ResMae, based in Brea, California, was the third lender specializing in loans to risky, or subprime, borrowers to seek bankruptcy protection since the end of December and is one of more than 20 that have shut down, scaled back or been sold since last year as default rates rise.

Citadel, which is run by Kenneth Griffin and oversees about $13.4 billion in assets, challenged Credit Suisse's bid last week, triggering a March 2 auction. ResMae filed for bankruptcy protection on Feb. 13. Citadel is at least the third hedge-fund manager to enter the subprime-mortgage business.

``They see it as a very good opportunity,'' Greenspan said. ``To a certain extent, they're contrarian investors, and they've analyzed the business, they've analyzed the platform and they believe it's the place they want to be.''

Citadel spokesman Bryan Locke and Credit Suisse spokesman Pen Pendleton in New York declined to comment. Credit Suisse will receive a $2 million breakup fee, ResMae lawyer Daniel J. DeFranceschi said in a court hearing today.

Credit Suisse's American depositary receipts, each representing one ordinary share, fell 68 cents to $67.83 in New York Stock Exchange composite trading at 4:01 p.m. They have climbed 19 percent in the past year.

Shrinking Loans

Last year, subprime loans in the U.S. mortgage industry fell 3.8 percent to $640 billion after rising for five straight years, according to Inside B&C Lending. ResMae made $7.7 billion in loans during 2006, up 11 percent from 2005, placing it 21st among U.S. subprime lenders, the newsletter reported.

Subprime lenders earned profits by signing up home buyers and then reselling the loans to firms like New York-based Merrill Lynch that bundled them into bond packages. The sales typically came with buyback guarantees, requiring lenders like ResMae to repurchase the loans if the borrower defaulted in the first few months.

ResMae was founded in 2002 by three former executives of Long Beach Mortgage Co. In October 2003, the company raised $25 million of equity from a joint venture of Thomas H. Lee Partners LP, the Boston-based buyout firm, and Putnam Investments.

At least two New York-based hedge-fund managers are already in the subprime-mortgage business. Last July, Fortress Investment Group LLC paid $554.3 million for the subprime lending arm of Dallas-based homebuilder Centex Corp. In December, Fortress agreed to buy Champion Mortgage's loan- underwriting business from KeyCorp.

Aegis Mortgage Corp., a lender based in Houston, is an affiliate of Cerberus Capital Management LP.

The case is In re: ResMae Mortgage Corp., 07-10177, U.S. Bankruptcy Court, District of Delaware (Wilmington).

-- With Reporting by Jody Shenn in New York. Editor: Farr.

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at +1-302-661-7606 or schurch3@bloomberg.net; Bradley Keoun in New York at +1-212-617- 2310 or bkeoun@bloomberg.net.

To contact the editors responsible for this story: Patrick Oster at +1-212-617-4088 or poster@bloomberg.net.

Last Updated: March 5, 2007 17:47 EST