(Adds S&P downgrade; updates share prices throughout.)
stock plunged as much as 18% on Friday after the brokerage firm priced 435 million shares at $1.10 apiece.
Following the offering, Standard & Poor's said Friday that it had downgraded the company's long-term counterparty credit ratings as well as certain senior debt ratings further into junk territory to 'CC' from 'CCC-'.
S&P expects to lower the ratings on E*Trade and the two debt issues upon completion of the offer, it said. The ratings agency affirmed the 'CCC+' counterparty credit and certificate of deposit ratings on E*Trade Bank.
"These actions, if successful, will modestly improve the bank's equity foundation, lengthen the maturity structure of the holding company's long-term debt, and materially lower interest servicing requirements. But we view these transactions as a short-term fix to a long-term problem," S&P credit analyst Charles Rauch said.
E*Trade's largest equity and bond investor, hedge fund Citadel Investment Group and its affiliates, purchased 90.9 million shares. Citadel's purchase brings its common-share stake in E*Trade to 17% up from roughly 16%.
E*Trade said Friday that gross proceeds from the offering, before underwriting discounts and commissions, were $478.5 million. It will use the proceeds to provide additional equity capital primarily for E*Trade Bank, which was told by the Office of Thrift Supervision, its primary regulator, that it needed to raise capital.
The offering is expected to close June 24.
The company also said it intends to launch an exchange of more than $1 billion in outstanding debt on June 22.
E*Trade on Wednesday said it planned to
through the sale of common stock and a "significant" debt exchange as part of the online brokerage's plans to raise capital.
S&P affirmed its negative outlook for the holding company and its bank subsidiary given concerns that "profitability will remain weak" this year as it continues to address its asset quality problems.
"Notwithstanding some improving credit metrics in recent months, E*Trade Bank could still burn through the new equity infusion to cover high credit losses in its large first-mortgage and home-equity loan books by year end," S&P said.
Shares of E*Trade were recently down 16.1% to $1.20.
Joseph Woelfel contributed to this report.