CHICAGO, May 25 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
placed the credit ratings of Aames Financial Corporation (Aames) on
Rating Watch-Down. In addition, the ratings have been lowered from 'B-'
(Single-B-Minus) to 'CCC' (Triple-C).  The affected ratings include Aames'
senior debt and subordinated convertible debt.  Approximately $276 million of
outstanding debt is affected.
    DCR's 'CCC' (Triple-C) rating category indicates considerable uncertainty
as to timely payment of principal, interest and preferred dividends.
Protection factors are narrow, and risk can be substantial with unfavorable
industry conditions and company developments.
    The rating action is prompted by Aames' announcement on May 22, 2000 that
it would incur further losses due to additional write-downs to
securitization-related residual assets and the unfavorable climate in the
whole-loan sales market.
    On May 19, 2000, Aames entered into an agreement with Specialty Finance
Partners, the company's lead stockholder, which is controlled by Capital Z
Financial Services Fund II, L.P. (Cap Z) for the sale of $50 million of Aames'
Series C convertible preferred stock. This expected capital infusion should
relieve near-term financial stress for Aames.  This capital infusion is being
offered under the New York Stock Exchange's 'Financial Distress Exception,'
which does not require shareholder approval of the additional preferred stock.
In addition to normal closing conditions, the investment is subject to several
other conditions.  These include a fairness opinion to be delivered by a
nationally recognized investment banking firm, the receipt by the company of
waivers from certain of the company's financing providers, and a material
adverse change provision in the stock purchase agreement.  Additionally, Aames
also announced that it has entered into negotiations with an affiliate of
Cap Z for a $75 million forward residual purchase facility.
    While the preferred stock and residual purchase facilities provide
near-term relief from liquidity constraints, they alone do not alter the weak
fundamentals in the company's business.  DCR believes that, over the near
term, the company will continue to be impacted by weak margins in the whole
loan markets, negative operating earnings and cash flow, as well as the heavy
burden of executing home equity securitizations.
    Senior and subordinated creditors are also at risk if the company fails to
successfully execute on the above transactions, as all of the company's credit
facilities are cross-defaulted.  Failure to renegotiate covenants under the
company's warehouse facilities would trigger an event of default under the
senior and subordinated bonds.
    It is DCR's opinion that, under realistic valuation assumptions for Aames'
interest-only residual assets and taking into consideration the first priority
position of secured lenders, the probability of full recovery for unsecured
bondholders is unlikely if a liquidation scenario was to arise based on the
company's current financial profile.  DCR expects that timely and full
repayment will only occur under a positive operating environment resulting
from a sustained favorable business climate.
    The Rating Watch status will be resolved provided the company can
successfully execute the preferred stock offering and residual purchase
facility, as well as begin to generate positive operating trends with respect
to profitability and asset quality.
    The current ratings take into account the challenges facing management in
its attempt to turn the company around.  Success will depend on Aames' ability
to grow spread revenue, improve asset quality, reduce the company's overhead
cost structure, and expand the company's funding capabilities.
    For additional research, visit DCR's Web site at http://www.dcrco.com.
DCR's research is also available on Bloomberg at DCR, FirstCall's BondCall
Direct/Research Direct at http://www.firstcall.com and Multex at
http://www.multex.com, as well as through other third-party providers.

 SOURCE  Duff and Phelps Credit Rating Co.

Web site:  http://www.dcrco.com