Los Angeles-based distressed buyout firm Signature Group Holdings LLP has been chosen to revive fallen subprime mortgage lender Fremont General Corp.
Signature was one of three groups vying for control of the Anaheim Hills-based company, which once was the fifth-largest U.S. subprime mortgage lender with more than 3,500 employees.
A decision to approve Signature’s reorganization plan for Fremont was made through a bench ruling issued recently by the U.S. Bankruptcy Court in Santa Ana, according to John Schafer, a partner at Newport Beach-based Manderson, Schafer & McKinlay LLP.
“A final judgment has been made. But there are a few administrative changes that are necessary before the bankruptcy’s closing,” he said.
Schafer’s firm represented Signature’s bid for Fremont in a case that lasted almost two years.
“By the end of May, we expect the reorganized company to effectively emerge from bankruptcy,” he said.
A new board will take control once that happens, according to Schaefer.
Craig Noell, currently managing director at Signature, is set to head management of the reorganized Fremont.
“For all intents and purposes, Craig will be running the company,” Schafer said.
The company’s current management is expected to remain in place through November.
“That’s when their management agreements run out,” Schafer said.
Signature will run Fremont as CP Management Inc.
It is looking to revive Fremont as a business lender.
“Fremont General essentially will be a commercial finance company with a target toward mid-tier companies with gross sales of $10 million to $500 million,” Schafer said. “It’ll be out of the subprime lending business.”
The new Fremont also will be out of the mortgage lending business, he said.
“Signature’s niche has been to go in and structure commercial loans around the unique characteristics of each business,” Schafer said.
John Nickoll, cofounder and former chairman of Los Angeles-based Foothill Capital Corp.—now part of Wells Fargo & Co.—is set to be Fremont’s chairman.
Schafer compared Fremont’s new business plan to Foothill Capital’s.
A new name for Fremont General is being considered, according to Schafer.
“But nothing has been decided yet,” he said.
Signature Group’s plan proposed a reorganization that would pump $10.3 million into Fremont General for about a 10% stake, according to court filings.
Its plan had the backing of unsecured creditors and Fremont’s largest shareholder, founder James McIntyre. He still holds about a 12% stake in Fremont General.
“The other plans don’t have what I consider the same quality of management or the same package of complete products,” McIntyre told the Business Journal last month.
Entering the final stages in the case, the company was estimated to have about $355 million in cash and equivalents and some $45 million in loans.
After debts are paid, investors involved in the process have estimated that Fremont General could emerge with anywhere from $37 million to $114 million.
“There are so many payments to be made and arrangements to be finalized,” Schafer said. “It’s hard to come up with a definitive amount of cash the company will have coming out of bankruptcy. But it will be cash positive.”
Fremont filed for bankruptcy in 2008. The company once ran a bank and made home loans to borrowers with imperfect credit.
It packaged loans and sold them as bonds to Wall Street. When loans started going bad in 2007 and 2008, Fremont was forced to buy them back, crushing the company.
Under threat from regulators, Fremont sold its banking unit to Maryland’s CapitalSource Inc. in 2008.
