DBRS Downgrades Colonial BancGroup, Inc.; Maintains Ratings Under Review with Negative Implications

DBRS has today downgraded the ratings for Colonial BancGroup, Inc. (Colonial or the Company), and its related entities, including Colonial’s Issuer & Senior debt rating to CC from CCC (high) and its bank subsidiary, Colonial Bank’s (Bank) Deposits and Senior Debt rating to CCC from BB (low). All ratings remain Under Review with Negative Implications.

Today’s rating actions reflect DBRS’s view that Colonial’s ability to remain as a going concern has been severely weakened by the termination of the stock purchase agreement with a group of investors led by Taylor, Bean & Whitaker Mortgage Corp. (TBW). DBRS comments that the ability of the Company to raise the additional $300 million, which is a condition for an investment by the U.S. Department of the Treasury, is severely limited. Moreover, the possibility of further regulatory actions has been heightened by this development. Colonial is currently operating under cease and desist (C&D) orders, with the Federal Reserve, the FDIC, and the State of Alabama, which require the Bank to maintain certain capital levels. The Company reported in its Q2 2009 earnings release that it was not in compliance with the capital requirements. Indeed, several of the Company and Bank’s regulatory capital ratios fall below well capitalized levels, as defined by the regulators.

Although Colonial is exploring all alternatives to strengthen its capital position, it is DBRS’s opinion that its ability to absorb future credit costs and other unforeseen charges is severely curtailed. DBRS comments that the Company’s asset quality remains under significant pressure, especially given its substantial troubled Florida-based construction and development portfolio. DBRS will continue monitoring the Bank’s ability to protect its deposit franchise, which is an underlying factor in the ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are Rating Banks and Bank Holding Companies operating in the United States and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.