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Accredited Home Lenders’ & #8201;Stock Teeter-Totters in Wake of News Events

The saga surrounding Accredited Home Lenders Holding Co. and its pending sale to a Texas hedge fund continues with investors jumping off and back on to the stock in record numbers.

When the San Diego subprime lender released its 2006 annual report Aug. 2 that contained its auditor’s carefully worded opinion about its future, if the sale isn’t consummated, 17 million shares traded hands.

The news sent the stock, traded under LEND on Nasdaq, down by $3 to close at $5.31. The previous three-month float was 2.7 million shares.

In the next several days, Accredited shares rebounded to get back above $7, but closed Aug. 8 at $6.04.

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Most attributed the sell-off to the auditor’s opinion, but there’s been a flood of skepticism surrounding the acquisition from the day it was announced in early June.

Lone Star, a Dallas-based hedge fund that has raised $13 billion since its founding in 1995, agreed to pay $15.10 per share, or $400 million, for Accredited on June 4.

The following day, shares shot up to just above the offer price, but gradually began losing ground, a sign that investors weren’t convinced Lone Star would pull off the deal.

By late July, the stock was trading below $10, and since this month, its high was a bit above $8.

One professional investor, Jim Cramer of CNBC’s “Mad Money” program, proclaimed that the Lone Star deal was “ironclad.” That sent the shares’ long investors into celebration on the company message board, while the shorts, those betting the stock will fall in value, were less visible.

Lone Star had the tender offer extended to Aug. 14 to obtain state regulatory approvals before the transaction closed.

Accredited said it doesn’t expect the approval process will prevent the transaction from closing, but that it may need a second 10-day extension.

Accredited added, “While there is no guarantee that the transaction will close, the company expects the tender offer to be concluded in the third quarter of 2007.”

As to Accredited’s 2006 numbers (revealed about five months late), there were some that threw up red flags and others that would seem to allay fears.

The bottom line is Accredited Home Lenders is a company operating on a thin leash, losing money, shrinking in size and carrying a rising amount of problem loans.

For the year, it sustained a net loss of $205.7 million compared with net earnings of $155.4 million for 2005.

Accredited reported total mortgage originations of $15.8 billion last year, down 4.9 percent from $16.6 billion in 2005.

The company’s loan portfolio it serviced showed that the level of problem loans nearly tripled, increasing to 7.2 percent at the end of 2006 from 2.5 percent of the total in 2005. That was nearly $700 million on the serviced portfolio of $9.7 billion.

The subprime market has been decimated this year by the combination of increased delinquencies, pulling of credit lines to mortgage lenders, and heavy discounting on the new subprime mortgages.

As of mid-June, 50 mortgage companies, including one of the largest, New Century Mortgage Corp., had failed and others are facing an uphill battle to survive.

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DJO Profits, Revenue Rise:

DJO Inc., a Vista-based maker of orthopedic rehabilitation devices, reported second-quarter net income of $5.4 million on revenue of $120.2 million. That compared with net income of $1.3 million on revenue of $106.5 million for the like quarter of 2006.

For the first six months of 2007, DJO had net income of $9.4 million on revenue of $235 million, compared with net income of $7.2 million on sales of $189 million for the first half of 2006.

DJO entered into an agreement July 16 to be acquired by ReAble Therapeutics Inc., a medical device company based in Austin, Texas, and primarily owned by the Blackstone Group. The deal calls for a cash offer of $50.25, or an aggregate of $1.6 billion including $300 million in DJO’s outstanding debt. The deal is scheduled to close in the fourth quarter.

As of Aug. 7, DJO shares were traded at $47.29 on the New York Stock Exchange, and have ranged from $31.07 to $53.55 in the past 52 weeks.

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Leap Shares Fall On Second-Quarter Results:

Shares of Leap Wireless International Inc., parent to flat rate wireless carrier Cricket, fell about 25 percent Aug. 8, the day after the San Diego company released second-quarter results that included lower customer additions than analysts had expected.

Leap’s stock, traded on Nasdaq under LEAP, closed at $60 on Aug. 8, down from the prior day’s close of $80.36. Its 52-week range has been between $41.90 and $99.04.

Leap reported a net profit of $3.2 million on revenue of $393.2 million for the second quarter, compared with a net profit of $7.5 million on revenue of $267.8 million for the like period of 2006.

For the first half, Leap reported a net loss of $4.8 million on revenue of $782.6 million, compared with a net profit of $25.2 million on revenue of $534.5 million in the first half of 2006.

The company said it gained 126,791 net new customers during the quarter, at the low end of what it had forecast and what Wall Street analysts had expected.

Total customers at the end of June were 2.67 million, up 46 percent from 1.8 million in June 2006.

Leap forecast net customer growth in the third quarter at 40,000 to 120,000, reflecting a slowing of its expansion.

The company’s cell phone service, which targets lower income and young people, is available in 23 states and 35 of the top 50 U.S. markets, including San Diego.

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Topps’ Shareholders To Meet On Merger:

Topps Inc., a New York-based sports card and candy company, said it’s holding a meeting of shareholders to vote on a proposed sale of the firm to a partnership of the Tornante Co. LLC and Madison Dearborn Partners on Aug. 30.

That meeting will certainly be closely followed by Upper Deck Co., a Carlsbad maker of sports cards, which has made an offer to Topps at $1 more per share than the $9.75 made by the Tornante, controlled by former Walt Disney Co. Chief Executive Officer Michael Eisner, and Madison partnership.

While Topps’ board has recommended shareholders ignore the Upper Deck offer and approve the Tornante offer, at least one shareholder group has been vocal in its opposition.

Crescendo Partners, a New York-based private equity firm, said in a supplemental proxy mailed to shareholders that the executive committee of Topps’ board “is rife with conflicts of interests that have tilted the balance in favor of the Eisner merger, even if it means less value to you.”

Crescendo advised shareholders to reject the offer and replace the board with a new slate of directors.

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First PacTrust Reports Reduced Profit:

First PacTrust Bancorp, holding company of Chula Vista-based Pacific Trust Bank, reported second-quarter net income of $800,000, down from $1.1 million in the like period of 2006.

The savings bank reported net income of $1.8 million for the first half of 2007, down from $2.2 million in the first half of 2006.

CEO Hans Ganz said because of the depressed yield curve, Pacific Trust is no longer making profits on new home loans, so it’s chosen to abandon making new mortgages.

“It’s smarter to let the lower yielding loans run off (or pay off) rather than making loans where the margins don’t generate profit,” said Ganz.

The savings bank, with assets of $769 million, reported one problem credit that caused it to put aside higher reserves, a non-accrual construction loan of $10 million. Ganz said the condo project was put on hold, and the borrower stopped paying.

The bank is now fully reserved, but the bank is a minority lender on the credit, participating with a much larger lender that Ganz wouldn’t reveal.

Traded on Nasdaq under FPTB, First PacTrust closed at $21.90 on Aug. 7 and has ranged from $20.65 to $28.92 in the past 52 weeks.

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Ticker Takes:

Sempra Energy profits for the second quarter were $277 million, down from $373 million for the like quarter of 2006. Jack in the Box Inc.’s board approved a 2-for-1 common stock split that must be approved by shareholders at a special meeting tentatively scheduled for Sept. 21. Document Sciences Corp. reported net income of $738,000 on revenue of $11.2 million for the second quarter, compared with net income of $144,000 on revenue of $8.5 million for the like period of 2006. WFI Inc. was awarded a $46 million contract from the U.S. Army Aviation and Missile Command. Genoptix Inc. said it seeks to raise $86 million in an initial public offering through sales of common stock on the Nasdaq.


Send any news of locally based public companies to Mike Allen via e-mail at

mallen@sdbj.com

. He can be reached at (858) 277-6359.

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