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Accredited Buys Time, Borrows $200 Million at 13% From Hedge Fund

The subprime mortgage loan debacle ran apace last week as several more lenders to riskier mortgage borrowers bit the dust, and a few more seemed on the verge of expiring.

San Diego subprime lender Accredited Home Lenders Holding Co. bought more time to get its house in order by borrowing $200 million from Farallon Capital Management, a San Francisco hedge fund.

Accredited said it needs the money to fund new mortgages and to use for general working capital after its source of funds, such as Goldman Sachs, tightened up credit agreements in the face of a huge surge in delinquencies by subprime borrowers.

Accredited previously obtained wholesale lines of credit to fund its mortgage loans from major investment banks, not from less prestigious , and costlier , hedge funds.

The money it arranged to borrow March 20 didn’t come cheap.

The five-year loan carries an annual interest rate of 13 percent, nearly 5 points over the prime rate of 8.25 percent.

In addition, Accredited granted Farallon the ability to purchase 3.3 million warrants in a private placement at an exercise price of $10.

Accredited and other subprime lenders have been forced to line up new credit lines as their existing investors got jittery after all the increased problem loans.

At Accredited, delinquencies of more than 30 days increased to 8.26 percent of its total loan portfolio as of Dec. 31, compared with 5.44 percent as of Sept. 30, the company said.

Before obtaining its loan, Accredited said it was exploring a number of options, including raising additional capital and laying off personnel.

The firm said it had to pay $190 million in margin calls on its credit lines since January because of loan repurchases it had to make due to delinquencies caused by borrowers.

Subprime loans that are in default can be returned to the lender.

In another bid to improve liquidity, Accredited arranged to sell $2.7 billion in mortgages to an unnamed entity, but it had to discount the sale and establish a special reserve fund to account for possible future delinquencies.

Accredited’s maneuvers impressed investors, who bid up shares by 20 percent to $10.77. The stock, traded on Nasdaq under LEND, hit a low this month , below $4 , when the company disclosed it wouldn’t file its annual report on time, and its shares could be delisted from Nasdaq. In February, LEND was trading at about $30.

Accredited was said to be the nation’s 15th largest subprime lender, according to Inside Mortgage Finance, a trade publication. The company reported 4,200 employees as of Dec. 31, including more than 700 working in San Diego.

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Rubio’s Settles Suit:

Carlsbad-based Rubio’s Restaurants Inc. said it has settled a class-action lawsuit for $7.5 million, which will result in a pretax charge of $8.4 million in the fourth quarter of 2006.

The charges include legal costs and interest, the company said in a statement.

The suit involved the wrongful classification of some employees and payment of overtime under state labor law.

The settlement, subject to court approval, provides for payments to defendants in three installments over 36 months, the first $2.5 million of which is due 65 days after the court approval.

Financing charges of 3 percent on the sum, equal to $337,500, are due 36 months after court approval.

Shares of Rubio’s, traded on Nasdaq under RUBO, rose 20 cents to $10 on March 19, the day the news was announced. The stock has ranged from $6.92 to $10.38 in the past 52 weeks.

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JBX Gains Cramer Endorsement:

Jack in the Box Inc., the other big local eatery based in the region, didn’t release any sig & #173;ni & #173;fi & #173;cant news, but its shares gained better than two points to close at $70 on March 20.

A recent story on TheStreet.com ranked the stock among the top 10 midcap equities available for investors.

According to Jim Cramer, host of the syndicated program “Mad Money,” the burger chain has demonstrated “solid earnings per share growth and relatively low debt-to-equity ratio compared to industry peers position it to continue its strong performance.”

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Document Sciences Sales And Net Loss Up:

Carlsbad-based Document Sciences Corp., a provider of document automation software, reported record revenue of $33.4 million for 2006, up 13 percent.

The company’s net loss for the year was $1.5 million, compared with a net profit of $19,255 in 2005. Nearly all of that loss, about $1.3 million, came in the fourth quarter.

Chief Executive Officer Jack McGannon attributed the losses to extensive spending on its sales and marketing, including the doubling of its North American sales force. The company also boosted spending on marketing the firm’s products.

“We believe we are at a turning point in our business,” McGannon said.

Traded under DOCX on Nasdaq, shares closed at $6.29 on March 19, and have ranged from $5.54 to $7.54 in the past 52 weeks.

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Javo Sales Perk Up:

Javo Beverage Co., a Vista-based provider of coffee and teas to food service outlets, reported revenue for the past year rose 67 percent to $10.2 million. The company took a net loss for the year of $9.9 million after a non-cash expense of $5.4 million related to a conversion of outstanding promissory notes to preferred stock.

For the fourth quarter, the company said revenue was $2.5 million, up 72 percent from the like period of 2005.

The company produces beverage concentrates sold to distributors and used by food service operators that are selling hot and iced specialty coffees and teas.

Traded on the Over the Counter Bulletin Board as JAVO.OB, shares closed at 91 cents, and have ranged from 38 cents to $2.38 in the past 52 weeks.


Send any news of locally based public companies to Mike Allen via e-mail at mallen@sdbj.com.

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