Moody's Investors Service upgraded Midlantic Corp. to investment grade on Tuesday.

The agency raised its rating on the banking company's senior debt to Baa3, the lowest investment grade, from Ba2.

In addition, Moody's raised the rating on the principal banking units, Midlantic National Bank and Continental Bank.

Sean B. Jones, a Moody's analyst, said the upgrades were in response to a combination of factors. Midlantic, in Edison, N.J., has shown continued improvement underlying earnings, credit quality, capital, and liquidity.

Second Boost

Taken together, those factors have helped the bank protect its valuable franchise in New Jersey and Pennsylvania.

It was Midlantic's second upgrade in a week from the credit-rating agencies. Duff & Phelps recently upgraded Midlantic Corp. and its second-tier holding company, Midlantic Banks Inc., to BB-plus from BB, which is still below investment grade.

The long-term ratings of its subsidiaries were also raised. At the same time, the ratings on the banks for short-term deposits were raised to Prime-2 from Prime-3.

$440 Million Affected

Midlantic's ratings were placed under review for possible upgrade on Nov. 4.

About $440 million of long-term debt is affected, the rating agency said.

Nevertheless, Midlantic still faces sizable challenges. It has a large real estate exposure as well as corporate loan exposure compared to its equity base, said Mr. Jones.

"I think they want to improve their risk profile in those areas," said Mr. Jones. "I'm confident that they will."

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