Fitch Affirms First Horizon National Corporation's IDR at 'BBB+'; Outlook Negative

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the long- and short-term Issuer Default Ratings (IDRs) of First Horizon National Corporation (FHN) and its subsidiary bank First Tennessee Bank, N.A. The Rating Outlook remains Negative. A list follows below.

FHN recently announced the sale of the company's mortgage origination and servicing platform to MetLife for book value, subject to certain adjustments, which is scheduled to close in the third quarter of 2008. In addition, FHN sold approximately $20 billion in servicing. FHN will have a subservicing agreement with MetLife for the remaining $65 billion in servicing, which FHN will continue to wind-down through bulk sales and natural run-off. As part of the transaction, FHN will record approximately $50 to $70 million in transition and severance costs over the next couple quarters.

In keeping with its strategy of refocusing the company on its core Tennessee operations, FHN will retain its mortgage operations within Tennessee. The divestiture is in line with the company's goal to reduce mortgage exposure. FHN has completed several bulks sales of servicing over the last couple quarters, and FHN began shutting down underperforming mortgage loan offices in September 2007. Fitch views today's announcement favorably as it reduces the volatility associated with the mortgage business segment and alleviates the associated capital requirements.

FHN has taken numerous steps recently to shore up its capital position and address asset quality weaknesses. Most recently, FHN raised nearly $700 million in common stock and intends to suspend its cash dividend, resulting in a strong Tier 1 risk-based capital ratio in excess of 10%. The dividend will be paid in stock beginning with the October 1st payment, pending Board approval. The planned shrinkage in the mortgage warehouse will further bolster capital ratios.

Considerable ratings pressure remains even though Fitch views the mortgage unit sale favorably. FHN faces continued weakness in its various mortgage industry exposures. Fitch downgraded FHN's ratings in March 2008 to 'BBB+' from 'A-' due to rising nonperforming assets (NPAs) and credit losses in the company's homebuilder finance portfolio and single family residential construction loan book, as well as Fitch's concerns regarding FHN's large exposure to home equity lending. The national real estate portfolio comprises 42% of loans, but more than 80% of nonperforming loans. FHN has since ceased originating these products and expects to shrink these portfolios considerably over the next twelve months. The loan loss reserve at 2.20% of loans is considered good. Nonetheless, FHN remains exposed to its stressed national real estate portfolios, and NPAs remain elevated at 2.78% of loans and foreclosed real estate as of March 31, 2008.

Management's cost cutting efforts, initiatives to reduce or eliminate underperforming businesses, solid reserve and capital levels, and a more diversified capital markets business provide support for FHN's current ratings. Further, FHN's leading market share and strong franchise in Tennessee provide additional support.

Fitch affirms the following ratings:

First Horizon National Corporation

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Subordinated debt at 'BBB';

--Individual 'B/C';

--Support '5';

--Support Floor 'NF'.

First Tennessee Bank, N.A.

--Long-term IDR at 'BBB+';

--Short-term IDR at 'F2';

--Long-term deposits at 'A-';

--Short-term deposits at 'F1';

--Senior debt at 'BBB+';

--Subordinated debt at 'BBB';

--Preferred stock at 'BBB';

--Individual at 'B/C';

--Support at '5';

--Support Floor at 'NF'.

First Tennessee Capital Trust I and II

--Preferred stock at 'BBB'.

The Rating Outlook is Negative.

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