New York, August 04, 2009 -- Moody's Investors Service downgraded the ratings of Colonial BancGroup
(issuer to C from Caa1) and its subsidiaries, including its lead
bank, Colonial Bank (financial strength to E from E+ and long-term
bank deposits to Caa3 from B1). Following the downgrade,
the outlook is stable. This concludes the review that Moody's
initiated on April 1, 2009.
The ratings action follows Colonial's announcement that it has agreed
to a mutual termination of the agreement with Taylor, Bean &
Whitaker Mortgage Company and other investors, collectively referred
to as Taylor Bean, under which Taylor Bean would have made a $300
million equity investment in the Company. The agreement was terminated
as the closing conditions, most notably receipt of approximately
$550 million of TARP preferred capital, were not satisfied
by July 31, 2009.
Moody's said that the downgrades were in response to its view that
Colonial has insufficient capital to remain a going concern. As
a result the possibility of losses for uninsured depositors and other
creditors has increased. The rating reflects Moody's view
that unsecured creditors are in a more vulnerable position than depositors,
with an expected loss for uninsured depositors of 15%-30%
and more than 50% for unsecured creditors. Moody's
notes that Colonial is operating under Cease and Desist regulatory agreements
with both the FDIC and the Alabama State Banking Department as well as
the Federal Reserve which require the bank to increase its Tier 1 Leverage
ratio to 8% and Total Risk-Based Capital ratio to 12%
by September 30, 2009.
Following the company's second quarter loss of $606 million,
driven by a $302 million valuation allowance on its deferred tax
asset and continued heightened provisions of $294 million,
the bank's Tier 1 Leverage and Total Risk-Based Capital ratios
were 4.18% and 9.21%, respectively.
Because meeting the Tier 1 Leverage ratio requirement of 8% would
require approximately $1 billion in new capital, Moody's
believes there is little likelihood that, the bank will meet its
September 30th targets. Moody's said that Colonial's sizable concentration
in Florida commercial real estate (CRE), residential development
in particular, presents a substantial risk to the firm's ability
to survive. Following the second quarter loss that substantially
reduced Colonial's equity base, the CRE portfolio accounts
for approximately 23 times tangible common equity, with construction
lending comprising roughly 55% of total CRE. Nonperforming
(NPAs) assets have continued to climb reaching 12.34% (including
90+) of loans plus OREO and approximately 200% of TCE plus
reserves. Given the likely credit costs in the bank's CRE
portfolio, there is considerable risk of the firm becoming significantly
undercapitalized. As a result, unsecured creditors,
who are subordinated to depositors, could face sizable losses.
Moody's notes that Colonial is initiating an exchange of bank level
subordinated debt for bank level senior debt which is expected to increase
Tier 1 capital at the bank. Moody's view is that Colonial's
exchange offer would constitute a distressed exchange, since Moody's
does not believe that Colonial has other viable alternatives for strengthening
its common equity base and potentially avoiding default. The C
ratings on these securities reflect the anticipated losses to these creditors.
Moody's last rating action on Colonial was on April 1, 2009,
when the bank's financial strength rating was downgraded to E+ from
D and long term deposits to B1 from Ba2. Following the downgrade,
the ratings were placed on review, direction uncertain.
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.
Downgrades:
..Issuer: CBG Florida REIT Corp.
....Preferred Stock Preferred Stock,
Downgraded to C from Ca
..Issuer: Colonial BancGroup, Inc. (The)
....Issuer Rating, Downgraded to C from
Caa1
....Multiple Seniority Shelf, Downgraded
to (P)C from (P)Ca
....Multiple Seniority Shelf, Downgraded
to (P)C from (P)Caa3
....Subordinate Regular Bond/Debenture,
Downgraded to C from Caa3
..Issuer: Colonial Bank
....Bank Financial Strength Rating,
Downgraded to E from E+
....Issuer Rating, Downgraded to C from
B2
....OSO Senior Unsecured OSO Rating,
Downgraded to C from B2
....Subordinate Regular Bond/Debenture,
Downgraded to C from Caa1
....Senior Unsecured Deposit Rating,
Downgraded to Caa3 from B1
..Issuer: Colonial Capital Trust IV
....Preferred Stock Preferred Stock,
Downgraded to C from Caa3
Outlook Actions:
..Issuer: CBG Florida REIT Corp.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Colonial BancGroup, Inc. (The)
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Colonial Bank
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Colonial Capital Trust IV
....Outlook, Changed To Stable From
Rating Under Review
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 C from Caa1)
