New York, January 28, 2009 -- Moody's Investors Service downgraded the ratings of Colonial BancGroup
(senior to B2 from Baa2) and its subsidiaries, including its lead
bank, Colonial Bank (financial strength to D from C-,
and long term bank deposits to Ba2 from Baa1). Following the downgrade,
the ratings are on review for further downgrade.
Moody's ratings action follows Colonial's announcement that
it lost $825 million in the fourth quarter, as well as the
company's disclosure that the $550 million of Tarp capital
that it received preliminary approval for on December 2, 2008,
is contingent on Colonial's raising $300 million of common
equity. In Moody's view, it is uncertain if Colonial can
raise the required capital. Although Colonial has a letter of intent
from a private equity investor to purchase up to 24.9% of
the company on a pro-forma basis, that falls well short of
the $300 million target set for it by the U.S. government.
The rating review will focus on the company's ability to raise the
common equity.
Colonial's sizable concentration in Florida commercial real estate
(CRE), residential development in particular, is the cause
of the magnitude of the downgrade. Colonial's CRE accounts
for approximately 6 times tangible common equity, with construction
lending comprising approximately 60% of total CRE. Colonial
has seen more than a four-fold increase in nonperforming assets
from the prior year end, largely in the residential construction
and land portfolio. Given Moody's views of the likely credit
costs in this portfolio, the rating agency believes there is significant
risk of the firm becoming undercapitalized. Without fresh capital
this puts severe pressure on the bank.
If Colonial is successful and ultimately receives the Tarp funding,
then Colonial's ratings could be confirmed. If on the other
hand, Colonial is unsuccessful, its ratings will be further
downgraded.
Moody's last rating action on Colonial was on January 11, 2008,
when the bank's financial strength rating was downgraded to C-
from C and long term deposits to Baa1 from A3, and the outlook was
changed to negative from stable.
The principal methodologies used in rating this issuer were "Bank Financial
Strength Ratings: Global Methodology" (February 2007) and "Incorporation
of Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology" (March 2007), which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Colonial is headquartered in Montgomery, Alabama, and its
reported assets were $26 billion at December 31, 2008.
Downgrades:
..Issuer: CBG Florida REIT Corp.
....Preferred Stock Preferred Stock,
Downgraded to Caa2 from Ba1, under review
..Issuer: Colonial BancGroup, Inc. (The)
....Issuer Rating, Downgraded to B2
from Baa2, under review
....Multiple Seniority Shelf, Downgraded
to a range of (P)Caa2 to (P)Caa1 from a range of (P)Ba1 to (P)Baa3,
under review
....Subordinate Regular Bond/Debenture,
Downgraded to Caa1 from Baa3, under review
..Issuer: Colonial Bank
....Bank Financial Strength Rating,
Downgraded to D from C-, under review
....Issuer Rating, Downgraded to Ba3
from Baa1, under review
....OSO Rating, Downgraded to NP from
P-2
....Deposit Rating, Downgraded to NP
from P-2
....OSO Senior Unsecured OSO Rating,
Downgraded to Ba3 from Baa1, under review
....Subordinate Regular Bond/Debenture,
Downgraded to B2 from Baa2, under review
....Senior Unsecured Deposit Rating,
Downgraded to Ba2 from Baa1, under review
..Issuer: Colonial Capital Trust IV
....Preferred Stock Preferred Stock,
Downgraded to Caa1 from Baa3, under review
Outlook Actions:
..Issuer: CBG Florida REIT Corp.
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Colonial BancGroup, Inc. (The)
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Colonial Bank
....Outlook, Changed To Rating Under
Review From Negative
..Issuer: Colonial Capital Trust IV
....Outlook, Changed To Rating Under
Review From Negative
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Gregory Frank
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Colonial (senior to B2), ratings are on review
