Fitch Downgrades First Horizon National Corp. Individual Rtg to 'C' from 'B/C', Affs IDR at 'BBB+'

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the Individual ratings of First Horizon National Corporation (FHN) and lead bank First Tennessee Bank, N.A. (FTBNA) to 'C' from 'B/C.' At the same time Fitch has lowered the long-term rating on trust preferred securities issued by FHN affiliate's First Tennessee Capital I and II to 'BBB-' from 'BBB,' and has assigned a new rating of 'BBB-' to preferred stock issued directly by FHN under the U.S. Treasury's Capital Purchase program. Long-term Issuer Default Ratings (IDRs), short-term IDRs, and other debt ratings of FHN and FTBNA are affirmed. The Rating Outlook is Negative. A complete list of ratings follows at the end of this release.

While recent actions taken by FHN to address near-term challenges are constructive, continued asset quality deterioration, combined with expectations for ongoing challenges in its national real estate exposures, increases the relative credit risk profile of the company well into 2009. To reflect this credit profile change, Fitch has downgraded the Individual ratings of FHN and its subsidiary. FHN's solid capital position, strength of its TN-based franchise, and revenue diversity provided by its capital markets business provide support for the affirmation of the IDRs at their current levels. FHN's overall default risk, embedded in the company's IDR, is also somewhat improved given its participation in the Capital Purchase Program.

In assigning a 'BBB-' rating to the preferred stock at the parent company and downgrading the ratings on the trust preferred securities, Fitch notes the lack of financial flexibility between the bank and holding company, as well as the large size of the preferred obligations at the company relative to other parent level obligations. Bank level losses over the last several quarters restrict the bank's ability to upstream dividends to the parent without first seeking regulatory approval. Fitch expects that FHN will retain a portion of the proceeds from the preferred stock issuance at the parent to service annual dividends. In the event that bank-level losses require additional capital to be downstreamed from the parent to the bank, the parent's ability to service preferred obligations could be under pressure.

Over the past few quarters, FHN has taken numerous steps to shore up its capital position and address asset quality weaknesses. In early May 2008, FHN raised nearly $700 million in common stock, and most recently, FHN issued $866 million in preferred stock to the U.S. Treasury under the Capital Purchase Program, which raises the September 30, 2008 pro forma Tier 1 risk-based capital ratio by over 300 basis points to an industry leading 14.4%. FHN's capital ratios will be further strengthened as a result of FHN's planned balance sheet contraction over the next several quarters.

FHN has undergone a considerable amount of restructuring over the past 12 months in an effort to refine its business model and strategy. FHN has transformed itself from a national mortgage lender with operations in 42 states to a TN-based regional bank with an increasingly diversified capital markets business. Fitch views the discontinuation of the previous national lending strategy favorably as it reduces FHN's outsized exposure to mortgage-related assets. However, FHN has reported a considerable amount of losses along the way, and still faces significant pressure in its remaining national real estate exposures. Although FHN has likely reported the majority of the charges associated with its restructuring over the past 12 months, it continues to face well above average credit costs as it resolves existing problems in its stressed national portfolios and emerging problems elsewhere in its loan book. Consequently, Fitch expects that FHN's profitability will still be under pressure in 2009 given the elevated levels of problem assets and the weakened economic environment.

While FHN is positioning itself for improved profitability over the long-term, the downgrade of the Individual ratings reflects the near-to-intermediate term pressures facing the company. The Negative Outlook reflects the possibility that credit and market conditions could deteriorate further, placing further stress on the company's turnaround prospects.

Fitch has downgraded the following ratings with a Negative Outlook:

First Horizon National Corporation

First Tennessee Bank, N.A.

--Individual to 'C' from 'B/C'.

First Tennessee Capital Trust I and II

--Preferred stock to 'BBB-' from 'BBB'.

In addition, Fitch assigns the following rating:

First Horizon National Corporation

--Preferred stock 'BBB-'.

Fitch affirms the following:

First Horizon National Corporation

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

--Short-term IDR at 'F2';

--Subordinated debt at 'BBB';

--Support at '5';

--Support Floor at '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';

--Short-term debt at 'F2';

--Preferred stock at 'BBB';

--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.