Fitch downgrades Fremont General

Fitch Ratings said it downgraded Fremont General Corp.'s long-term issuer default rating to CCC from B+, short-term issuer rating to C from B, long-term senior debt rating to CC from B and individual rating to E from D and Fremont General Financing I's preferred securities to C/RR6 from CCC+.

The agency also downgraded Fremont Investment and Loan's long-term deposits to B-/RR2 from BB, short-term deposits to C from B, long-term issuer default rating to CCC from BB-, short-term issuer rating to C from B and individual rating to E from C/D

The ratings remain on Rating Watch negative.

The downgrade follows Fremont General's recent regulatory filing disclosing that the company and its subsidiaries will enter into a formal cease and desist order with the Federal Deposit Insurance Corp. The order criticized a number of the Fremont General's practices, including violations of Section 23B pertaining to transactions between affiliates. The company also announced it plans to exit the subprime residential lending business and is engaged in discussions regarding sale of the business.

The Negative Rating watch indicates that further downgrades are possible. Fitch said the recent regulatory action significantly weakens the liquidity profile of Fremont General as the FDIC protects the interests of the depositors by insulating the bank or Fremont Investment and Loan. The cease and desist order includes maintaining tier I capital ratio above 14% and limits cash dividends by Fremont Investment & Loan without the prior written consent of regulators. As Fitch previously noted, debt at the holding company level is mainly being serviced by cash flows from residual interests in mortgage-backed securities backed by Fremont Investment and Loan-originated subprime residential real estate loan collateral.

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