Fremont General Corp. said today that an expected purchase by a investor group led by Gerald J. Ford in its Fremont Investment & Loan subsidiary may fall through, a sign that even lenders who have ditched subprime are facing some difficulties. Fremont exited the subprime mortgage business in March after receiving a cease-and-desist order from the FDIC, and said in early April that it had found a buyer for substantially all of its subprime and residential real estate operations. From the press statement:
Fremont General Corporation ... today announced that it has been advised by Mr. Gerald J. Ford that, in light of certain developments ... he is not prepared to consummate the transactions contemplated by the Investment Agreement entered into on May 21, 2007 .... As previously announced, the Investment Agreement provides for the acquisition by an investor group led by Mr. Ford of a combination of approximately $80 million in exchangeable non-cumulative preferred stock of FIL and warrants to acquire additional common stock of the Company. The Company said that, while it does not necessarily agree with the factual positions taken by Mr. Ford, it is in discussions with Mr. Ford concerning revised terms under which an entity controlled by Mr. Ford would proceed with an $80 million investment in exchangeable preferred stock of FIL and receive warrants to acquire additional common stock of the Company. The Company said that there can be no assurances as to whether or when the parties may reach an agreement with respect to revised transaction terms.
If executed, the deal is worth about 20 percent of Fremont's common stock, under original deal terms. The Fremont balk, however, is the latest in a string of expected investments in mortgage-related businesses to either fall through or move onto shaky ground as problems in the mortgage market continue to rattle investors and drive down valuations. American Banker notes, however, that this particular episode of cold-feet is different:
Several deals to buy mortgage companies have been canceled or renegotiated this year. But Theodore P. Kovaleff, an analyst at Sky Capital LLC, said he was at a loss to explain why a deal involving what is left of Fremont — its industrial bank — would fall through. "We don't know how much of this is simply an attempt to get a better price," Mr. Kovaleff said, citing the compromise that Accredited Home Lenders Holding Co. of San Diego reached last week with the Dallas buyout firm Lone Star Funds to sell itself for 28.5% less than the originally negotiated price.
(Subscribers can read the full article, and American Banker is one pub I highly recommend shelling out the dough to read.) Fremont also said in its SEC filing that it would catch up on delinquent SEC filing for 2006 and year-to-date quarters before the end of October.