Aug. 20, 2009 (Business Wire) -- Fitch Ratings has downgraded Sterling Financial Corporation's (STSA) ratings as follows:
--Long-term Issuer Default Rating (IDR) to 'CCC' from 'BB';
--Short-term IDR to 'C' from 'B'.
A complete list of the rating actions taken follows at the end of this release.
Today's rating actions follow STSA's announcement that it will defer its next scheduled interest payments on $245.3 million of junior subordinated debt and $303 million of Class A preferred stock issued to the U.S. Treasury under its Capital Purchase Program.
STSA has been come under continued pressure from a severe escalation of nonperforming loans, largely emanating from its residential construction loan book. At June 30, 2009, the ratio of nonperforming assets (NPAs) to loans and other real estate owned climbed to 9.02% from 6.73% at Dec. 31, 2008. The degradation of this portfolio over the last nine months has challenged STSA's ability to manage NPAs and has brought on operating losses from escalating provisioning to account for anticipated losses. At June 30, 2009, the construction loan book (composed of both residential and commercial projects) represented 25% of total loans, while at the same time, these loans make up 75% of NPAs. Additionally, it was disclosed that once properties are foreclosed upon and taken into other real estate owned (OREO), net realizable values have continued to fall, causing further write-downs or valuations for expected short-falls, totaling $12.1 million for the six months ending June 30, 2009.
At June 30, 2009, STSA had $62.4 million of cash at the parent company to service the aforementioned debt for which it has deferred interest payments. It is Fitch's view that the capital needs at the bank, which remains well capitalized under regulatory definitions at June 30, 2009, exceed the amount for which the parent could provide. Consequently, Fitch is concerned that actions may need to be taken to raise capital levels at Sterling Savings Bank (SSB) in order to adequately cover losses from its loan portfolio, which is reflective of Fitch's downgrade of the Individual Rating, communicating our view that external support is likely needed. Once additional clarity develops regarding the capital position of the subsidiary bank, Fitch will move to resolve the Rating Watch Negative status of SSB's ratings.
STSA is a $12.4 billion financial institution headquartered in Spokane, Washington with a footprint primarily in the Pacific Northwest of the U.S.
Fitch has taken the following rating actions.
Sterling Financial Corporation:
--Long-term IDR downgraded to 'CCC' from 'BB';
--Short-Term IDR downgraded to 'C' from 'B';
--Individual Rating downgraded to 'E' from 'D';
--Preferred Stock downgraded to 'C/RR6' from 'C';
--Support affirmed at '5';
--Support Floor affirmed at 'NF'.
The following STSA subsidiaries have been affected by today's rating action and are downgraded and placed on Rating Watch Negative:
Sterling Savings Bank
--Long-term IDR to 'B' from 'BB';
--Long-term Deposits to 'B+/RR3' from 'BB+';
--Individual Rating to 'D/E' from 'D'.
The following ratings are placed on Rating Watch Negative:
Sterling Savings Bank
--Short-Term IDR 'B'
--Short-Term Deposits 'B'
Additionally, Fitch affirmed the following ratings:
Sterling Savings Bank
--Support at '5';
--Support Floor at 'NF'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
