Fremont General Sells Loan Unit for $2B

(Read more on the debt and equity markets.)

SANTA MONICA, CA-Fremont General Corp. and New York City-based iStar Financial Inc. have signed a deal for the New York company to acquire the commercial real estate lending business of locally based Fremont for $1.9 billion in an all-cash transaction. As part of the deal, an investor group led by Gerald J. Ford, former chairman and CEO of Golden State Bancorp, will acquire a minority interest in the company and a new senior management slate will take over from the Fremont management.

The deal, which comes after Fremont was recently squeezed out of the subprime lending business, calls for Ford to become chairman of Fremont, with two other former Golden State execs, Carl B. Webb and J. Randy Staff, to become CEO and CFO respectively. Louis J. Rampino, current CEO of Fremont, says the new arrangement will enable the Santa Monica-based company to exit the commercial real estate lending business while retaining its retail banking operations.

Executives from iStar, which is led by chairman and CEO Jay Sugarman, discussed the sale in a conference call this morning in which Sugarman said that the deal will allow iStar to expand its US footprint and “leverage our strong brand across a larger universe of commercial real estate borrowers.” Other terms of the transaction, which is expected to close by the end of June, call for iStar to fund up to approximately $4.4 billion of existing unfunded loan commitments associated with the Fremont portfolio.

The collateral underlying the Fremont commercial real estate loan portfolio includes apartment, residential, retail, industrial, office, hotel and mixed use projects. The largest concentration is in apartments, which represent approximately 59% of the portfolio.

Today’s announcement by the two firms prompted the Fitch Ratings service to issue a report in which it called the rating outlook for iStar “stable.” The transaction will add “a somewhat riskier concentration of apartment/residential exposures” to the iStar portfolio, but the report says that the ratings agency “is comforted by iStar’s comprehensive credit review process, seasoned risk management team, and large and diverse asset profile.”