Moody's downgrades Fremont General

Moody's Investors Service said it downgraded Fremont General Corp.'s senior debt rating to B3 from B2, Fremont General Financing I's preferred stock to Caa2 from Caa1 and Fremont Investment and Loan's bank financial strength rating to E+ from D-, long-term deposits to B1 from Ba3 and issuer rating and other senior obligations to B2 from B1.

The ratings were placed under review for further possible downgrade.

The downgrade follows the announcement that Fremont received a cease and desist order from the Federal Deposit Insurance Corp, and in response Fremont has announced its exit from the subprime business and will attempt to sell it. Amongst the requirements of the cease and desist order is that Fremont Investment and Loan be prohibited to receive or renew brokered deposits, which make up 16% of the bank's deposits and funds 12% of its assets, and a plan to increase the bank's capital ratios and limit payment of cash dividends by Fremont Investment and Loan without prior written consent from its regulators.

The agency said the downgrade is in response to Fremont's reduced financial flexibility as it attempts to sell its sub-prime mortgage business and meet the requirements of its regulatory order. This reduced flexibility could increase liquidity challenges at both the bank and the holding company.

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