Fitch Ratings yesterday downgraded all debt ratings for Fremont General (NYSE:FMT) and placed both the financial holding company and its investment & loan banking operations (Fremont Investment & Loan, or FIL) on Rating Watch Negative, following Fremont's disclosure that it will postpone the release of its fourth quarter and full-year 2006 results of operations. Housing Wire reported on the delay yesterday. Fitch said it has downgraded Fremont General Corp.'s long-term Issuer Default Rating (IDR) to 'B+' from 'BB-', the long-term senior debt to 'B' from 'B+', and the Individual rating to 'D' from 'C/D'. Fitch has also downgraded the Preferred Stock rating of Fremont General Financing I to 'CCC+' from 'B-'. Fitch said it believes that FMT faces a difficult subprime residential mortgage market. Financial reporting delays notwithstanding, operating performance may continue to deteriorate over the next 12-18 months. In addition to risks associated with operating performance, debt at the holding company level is currently mainly being serviced by cash flows from residual interests in mortgage-backed securities (MBS) backed by FIL-originated subprime residential real estate loan collateral.
Recent vintages of Fremont MBS have underperformed, Fitch noted, and as a consequence, cash flows from underlying residuals may decline. At Sept. 30, 2006, FMT had available cash on hand and some contingent funding, including cash dividends from FIL, to offset any potential cash shortfalls from the residuals. While not a bank holding company, FMT is a holding company that engages in lending through FIL, which is an industrial bank regulated by the FDIC and the Department of Financial Institutions of the State of California. For more information, visit http://www.fitchratings.com.
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