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Local Lending Firm Prepares For Its IPO

Local Lending Firm Prepares For Its IPO

BY MIKE ALLEN

Senior Staff Writer

The stock market may not seem too inviting these days, but it’s not stopping one San Diego firm from going ahead with a planned initial public offering this week.

Accredited Home Lenders, a 12-year-old mortgage lender specializing in subprime home loans, was scheduled to have its stock priced and issued on the Nasdaq stock market this week, although no specific date was set.

AHL co-founder and Executive Vice President Ray McKewon was on the required “road show” circuit last week, presenting the company’s story to various investment funds, a sure sign the IPO was near.

Neither McKewon nor any other company officers could comment on the offering, citing rules that prevent any statements before the offering.

But some observers noted the IPO could be well-received.

“For the right types of deals, there is an appetite out there, simply because there hasn’t been any deals out there,” said Bud Leedham, senior equity analyst for Wells Fargo Securities in San Diego.

For all of 2002, only three local companies had an IPO , Petco Animal Supplies Inc., First PacTrust Bancorp and Gen-Probe Inc.

According to filings with the Securities and Exchange Commission, AHL will issue 9.65 million shares at a price between $9 to $11, which would raise a gross of $96.5 million if calculated at $10 per share.

After allowing for those shares held by existing owners, the underwriters’ discounts and expenses associated with the IPO, the company, which will trade under the symbol LEND, said it anticipates a net of nearly $40 million.

The firm plans to use the funds to support its credit lines, expand operations, open new offices, and hire more staff.

AHL’s business of lending to less than perfect borrowers carries some risk, but it’s a risk that it has managed well.

Founded in 1990 by McKewon and CEO James Konrath, the company’s revenues grew from about $5 million in 1995 to nearly $90 million in 2001. For the first nine months of 2002, AHL reported net income of $23 million on revenues of $139.8 million.

Employment has risen from about 50 in 1995 to nearly 1,300 today, including about 400 at its Mira Mesa headquarters.

AHL sells off most of the loans it makes to larger mortgage lenders. Last year, the firm originated $4.3 billion in home loans, an increase of 85 percent over its 2001 originations. The loans are made nationally through its network of some 3,200 loan brokers, and directly at 18 offices.

The subprime borrowers AHL lends to are those who don’t meet the requirements for an A qualify credit, and generally are charged a higher interest rate.

“In the past many of these borrowers couldn’t get a loan,” said Mark Reidy, director of USD’s Real Estate Institute. “But these are good loans. It just takes a little more time and effort (to do the underwriting).”

Rick Baldwin, senior manager of capital marketing for Portland, Ore.-based Meritage Mortgage, which also specializes in subprime lending, said providing credit to such borrowers often gets a bad rap because of the actions of some lenders charging excessive interest rates. So-called “predatory lending” practices usually charge such high rates the borrowers cannot make payments, and end up losing their homes.

While subprime borrowers are usually charged a little higher for the increased risk, the difference between the rates paid by classic A is getting smaller. Recently the difference dropped to its lowest level ever, about 100 basis points, or 1 percent, he said.

The market for home loans, including subprime loans, is growing fast. According to Inside B & C; Lending, an industry trade magazine, in 2001, subprime loans originated nationally were $173 billion, up 44 percent from the previous year, and about 9 percent of the total $2 trillion of all mortgages made that year.

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