Fitch puts Sterling on positive watch

Fitch Ratings said it placed the C long- and short-term issuer default ratings of Sterling Financial Corp. and its principal banking subsidiary, Sterling Savings Bank, on Rating Watch positive and affirmed their 5 support ratings, "No Floor" support floors and Sterling's C/RR6 preferred stock.

Separately, Fitch downgraded the individual ratings of Sterling and Sterling Savings Bank to F from E.

The Rating Watch positive follows the company's announcement of a definitive agreement to raise $730 million of new capital from private equity as well as other investors. The capital infusion is expected to close on or about Aug. 26.

The agency said the downgrade of the individual ratings indicates its opinion that Sterling would have defaulted if it had not received some form of external support, namely the capital infusion and the U.S. Treasury's willingness to convert its $303 million of preferred stock issued under its Capital Purchase Program into common shares on a discounted basis to facilitate the acquisition.

Fitch anticipates resolving the Rating Watch and reassessing the individual ratings after the capital raise is completed and the agency reviews the adequacy of new capital levels relative to remaining problem assets levels and the company's prospects for returning to profitability.

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