Aug. 31 (Bloomberg) -- Lone Star Funds cut its takeover offer for Accredited Home Lenders Holding Co. by 44 percent to $214 million, after the subprime mortgage company fired 60 percent of its workers and stopped making new loans.

Lone Star offered $8.50 a share, 35 percent more than yesterday's closing price, to defuse a legal scuffle that followed its attempt to back out of an earlier acquisition agreement with San Diego-based Accredited.

Dallas-based Lone Star initially bid to acquire Accredited on June 4 for $15.10 a share, or $400 million. About a month later, the investment group tried to scrap the deal, citing ``the drastic deterioration'' of Accredited's financial condition, according to a legal complaint.

``I wouldn't blame Lone Star for trying to get a cheaper deal given what's going on in the U.S. subprime market,'' said Hugh Young, who helps manage $50 billion at Aberdeen Asset Management Asia Ltd. in Singapore. ``Fundamentals of the U.S. housing market weren't really there in the first place. The buyers of assets related to the industry just realize that.''

Ed Trissel, a spokesman for Lone Star, declined to comment further on the offer, made public in a statement distributed by PR Newswire. Accredited spokesman Rick Howe didn't return a telephone message or e-mail seeking comment.

Lone Star's initial offer was 9.7 percent higher than the previous trading day's price. Accredited Home Lenders surged as much as 32 percent to $8.35 in extended trading yesterday after the offer was announced.

Shares Rise

Accredited shares rose 8 cents, or 1.3 percent, to $6.31 in Nasdaq Stock Market composite trading yesterday before Lone Star's statement was released. The stock has lost 80 percent of its value in the past year.

Subprime loans are made to borrowers with poor credit ratings or heavy debts. The mortgages often charge higher interest rates to compensate for the greater risk of default.

During the first quarter of this year, overdue payments on U.S. subprime mortgages rose to the highest level since 2002, according to the Mortgage Bankers Association. That's made investors who buy mortgages reluctant to bid, driving down prices and cutting into the profit of home lenders.

Accredited said last week that it would close more than half its operations, fire 1,600 employees and stop taking loan applications from third parties in a bid to outlast the subprime mortgage crisis. Chief Financial Officer John Buchanan announced his resignation a day later.

Until last year, sales of mortgage companies fetched hundreds of millions of dollars, capped by Merrill Lynch & Co.'s $1.3 billion purchase of First Franklin on Dec. 30. Since then, 15 have gone bankrupt and about 50 have suspended loans or closed. The total may be higher because some defunct firms didn't make public announcements or court filings.

Acceptance of the offer would end lawsuits over Lone Star's decision to back out of its earlier acquisition agreement, Lone Star said in the statement.

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net.

Last Updated: August 31, 2007 06:57 EDT