Moody's Investors Service on Wednesday downgraded Colonial because of the threat to the deal being consummated, "heightened by the current challenging environment for obtaining such financing." The rating agency downgraded its financial strength rating for Colonial Bank to E+ from D, and long-term bank deposits rating to B1 from Ba2.
"The downgrade reflects its opinion that, given the likely credit costs in the bank's commercial real estate portfolio, there is a significant risk of the firm becoming undercapitalized, absent a substantial capital injection," Moody's said. The ratings remain on review with direction uncertain, pending the outcome of the capital raise, it said.
Colonial was roundly criticized after the company disclosed on Jan. 27 that its approval to receive $553 million in TARP funds -- announced on Dec. 2 -- was contingent upon Colonial first raising $300 million privately.
The rancor was compounded when Colonial CEO Robert Lowder was less than forthcoming about a Dec. 15 memorandum of understanding the company entered into with Alabama bank regulators.According to the company's fourth-quarter conference call transcript, Lowder said "we are under no C&D