Rating Firm Downgrades Bonds of Brea’s UnionFed

BREA — Executives at UnionFed Financial Corp. will not discuss yet the “significant” loss the holding company is about to report, but a national bond-rating firm Tuesday said it is not waiting for details.

Duff & Phelps in Chicago said it expects to downgrade both the senior debt securities and the short-term certificates of deposit at the company’s main subsidiary, Union Federal Savings Bank in Los Angeles, once the company reveals the extent of its problems.

The company, which recently moved its headquarters to Brea from Los Angeles, said last week that its deteriorating real estate loans and holdings would lead to a loss for the fiscal year ended June 30, reversing a previously reported $11.1-million year’s profit.

The company said the loss stemmed from a substantial increase in its reserves that had been ordered by federal thrift regulators, who are conducting an examination of the institution.

UnionFed’s deteriorating condition has made it one of the biggest third-quarter losers on the New York Stock Exchange. Its stock price dropped 73.8%--the sixth-worst performance on the Big Board during the third quarter--and 85.3% during the first nine months of the year, the 10th-worst performance. Its stock closed Friday at $2.625 a share.

The company expects to report its adjusted financial statement early next week. Until then, Duff & Phelps has the S&L;’s bonds and short-term certificates of deposit on a watch list with an “unfavorable trend” designation.

The Chicago firm, however, acknowledged that the S&L;, with $2.5 billion in deposits and 27 branches in Los Angeles and Orange counties, has a major advantage on its side.

“While Union Federal has experienced serious deterioration in asset quality over recent quarters,” the rating company said, “its substantial capital base provides a large layer of protection, and its large level of core deposits provides funding stability.”