Aug. 21 (Bloomberg) -- Accredited Home Lenders Holding Co., the subprime mortgage company that's suing to salvage its takeover by a private-equity firm, plans to sell $1 billion of loans to prevent creditors from demanding more collateral.

Half of the loans were sold last week and the remaining sales will take place by October, Chief Executive Officer James Konrath said today in a statement. The buyer and specific terms of the transaction weren't disclosed.

The agreement may help Accredited preserve cash as it seeks to force Dallas-based Lone Star Funds to complete a planned $400 million buyout. Accredited's balance of cash and available credit tumbled by 27 percent to $175 million in July as some banks curtailed the company's ability to borrow and others demanded cash as protection against loan losses.

The sale ``alleviates some of the pressure'' from creditors, said Scott Valentin, an analyst at Friedman, Billings, Ramsey Group Inc., who has a ``market perform'' rating on Accredited. ``Whoever's providing the funding has agreed to take the loans off Accredited's balance sheet, and there's no further hit to liquidity.''

Accredited had been counting on the sale to Lone Star to bolster its finances, and the company's auditor said earlier this month that it may not survive if the transaction collapses. Lone Star backed out of the deal on Aug. 10, citing ``the drastic deterioration'' of Accredited's financial condition.

Additional Collateral

Mortgage lenders like Accredited use credit lines from commercial and investment banks to finance their home loans. Creditors have been demanding additional collateral to cover potential losses as homeowners fall behind on payments amid the worst U.S. housing slump since the Great Depression.

At least 90 mortgage companies have had to halt operations, file for bankruptcy or put themselves up for sale since the beginning of last year.

Under the terms of the loan sale, Accredited will lose its collateral, which probably ranged from 5 percent to 10 percent of the $1 billion principal amount of the loans, Valentin said.

``Effectively they're selling the loans at a loss'' of $50 million to $100 million, he estimated.

Accredited has the right to buy the loans back in mid- November at a higher price ``if the market improves to a rational level,'' Konrath said. The option may allow Accredited to recover a portion of its loss on the sale, Valentin said.

`A Good Thing'

``If the company can get them to take the loans, that's probably a good thing,'' said Bose George, an analyst at KBW Inc. in New York, who has a ``market perform'' rating on the stock. ``Liquidity is key here, just not to lose capital.''

Konrath didn't return a call seeking comment.

The company's shares rose 11 cents, or 1.7 percent, to $6.55 in Nasdaq Stock Market trading. The stock has declined 76 percent this year.

Accredited sued Lone Star in Delaware Chancery Court on Aug. 11, the day after the deal collapsed, claiming Lone Star had no grounds to walk away. Lone Star said in a court filing yesterday that it had no obligation to Accredited other than a ``possible contractual remedy'' of a $12 million breakup fee. A trial has been set for Sept. 26.

In the meantime, ``it's going to be challenging'' for Accredited to survive on its own, George said. Demand for the company's loans has dried up in the secondary market where they're traded by Wall Street firms, banks and other investors, he said.

`Pretty Hard'

Accredited said today it still has $600 million of loans not covered by the agreement, partly funded by credit lines.

``It doesn't seem like there's any secondary-market alternative for subprime lenders,'' George said. ``It's pretty hard to lend if you can't do anything with that loan.''

The company is doing all that it can to remain in business as the Lone Star litigation moves through the courts, Valentin said.

``Clearly they're trying to maintain liquidity and remain an operating company until the deal closes,'' he said. ``Even if there was not deal in hand, they'd be taking these actions to try to shore up the capital.''

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

Last Updated: August 21, 2007 19:07 EDT