Fremont General to sell commercial real estate business, 20% interest in company

By Lisa Kerner

Charlotte, N.C., May 22 - Fremont General Corp. agreed to sell its commercial real estate lending business as well as a minority interest in the company through its banking business.

iStar Financial Inc. will purchase Fremont's California-based commercial real estate lending business and outstanding loan portfolio for about 30% of the net loan portfolio, or $1.9 billion, and a participation interest equal to roughly 70% of the net loan portfolio, which will bear interest at Libor plus 150 basis points.

Upon closing, expected by June 30, Fremont will own a 70% A-participation interest in the portfolio. iStar has agreed to fund up to about $4.4 billion of existing unfunded loan commitments associated with the portfolio.

iStar, a publicly traded finance company, said it has interim financing committed to fund the transaction that it expects to replace through the issuance of debt and equity securities. The deal will boost iStar's total assets to more than $14 billion. The company plans to retain most of Fremont's commercial real estate employees, facilities and operations, a company news release stated.

Minority interest sale

An investor group led by Gerald J. Ford will acquire a 20% interest in Fremont through a combination of $80 million in exchangeable non-cumulative preferred stock of the company's wholly owned industrial bank, Fremont Investment & Loan, as well as warrants to acquire 7.1 million additional shares of Fremont common stock. The warrants have a term of approximately 15 months and a strike price of $8.44.

The exchangeable non-cumulative preferred stock is exchangeable into Fremont common stock at $8.44 per share. Subject to stockholder approval, the investor group will also receive warrants to purchase some 4 million shares for a total of 11.1 million shares. The conversion price of the preferred stock and warrants would increase to $9.00 per share.

The minority interest transaction is slated to close within 30 days after all regulatory approvals are received.

Ford will become chairman of the board of Fremont General and the bank. Carl B. Webb was named chief executive officer and J. Randy Staff was named chief financial officer. Ford has acquired, consolidated and sold more than 40 financial institutions and financial services companies. He was chairman and chief executive officer of Golden State Bancorp Inc. from 1994 through 2002.

"These transactions provide a major turning point for Fremont General," Fremont chief executive officer Louis J. Rampino said in the release.

"The transaction with iStar allows us to exit our existing commercial real estate lending business while retaining an earning asset that provides a bridge to the development of new lending businesses. Mr. Ford intends to build new lending businesses around Fremont's existing retail deposit business."

Fremont General is a financial services holding company located in Santa Monica, Calif.

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