S&P drops Colonial to CCC

Standard & Poor's said it lowered the long-term counterparty credit rating on Colonial BancGroup Inc. to CCC from B and the long-term counterparty credit ratings on subsidiary Colonial Bank to B- from BB- and the short-term ratings to C from B. Ratings remain on CreditWatch with negative implications.

"The rating action primarily reflects our view that there is significant execution risk involved with the company's announced capital plan, especially regarding investor financing, regulatory approval, and the company's participation in the U.S. Treasury's Troubled Asset Relief Program. Specifically, the company announced that it has signed a definitive agreement with investors for a $300 million equity investment," S&P analyst Robert Hansen said in a statement.

The action also reflects concerns that Colonial's loan portfolio will experience further material credit deterioration, notably in the construction loan portfolio, with continued pressure on home prices and reduced real estate sale activity, according to the agency.

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