Correction: First Horizon National ratings story

In a Dec. 4 story about First Horizon National Corp. and lead bank First Tennessee Bank, The Associated Press reported erroneously the meaning of the individual rating assigned by Fitch Ratings. The new rating of "C" denotes an adequate bank that possesses one or more troublesome aspects. It does not imply a rating of non-investment grade, or "junk."

A corrected version of the story appears below.

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CHICAGO (AP) — Fitch Ratings on Wednesday downgraded the individual ratings of First Horizon National Corp. and lead bank First Tennessee Bank to "C" from "B/C."

The new rating of "C" denotes an adequate bank that possesses one or more troublesome aspects.

Fitch also lowered its long-term rating on trust preferred securities issued by First Horizon affiliate's First Tennessee Capital I and II to "BBB-" from "BBB," and assigned a new rating of "BBB-" to preferred stock issued directly by First Horizon under the U.S. Treasury's Capital Purchase program. These ratings are investment grade.

The rating outlook is "Negative."

While Memphis, Tenn.-based First Horizon has taken recent action to address near-term challenges, "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," Fitch said in a release.

However, its "solid capital position," strength of its franchise and revenue diversity support the investment-grade ratings of its long-term debt, Fitch said.

First Horizon's overall default risk is somewhat improved given its participation in the Treasury Department's Capital Purchase Program, the ratings agency said. Last month, First Horizon received $866 million as part of the government's $700 billion bank rescue package.

The rating for the preferred stock reflects a lack of financial flexibility that restrict its ability to pay dividends, particularly if its subsidiary bank needs the parent company to provide more capital support, Fitch said.

"Over the past few quarters, FHN has taken numerous steps to shore up its capital position and address asset quality weaknesses," Fitch said, using the company's New York Stock Exchange ticker symbol. The bank has gone through "a considerable amount of restructuring over the past 12 months in an effort to refine its business model and strategy," the agency said, transforming itself from a national mortgage lender with operations in 42 states to a regional bank "with an increasingly diversified capital markets business."

Discontinuing the lending strategy was favorable, but the company still faces "significant pressure" because of its real estate exposure. "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." Fitch expects profitability will still be under pressure in 2009 given these issues and the weak economy.

The negative outlook reflects the possibility that credit and market conditions could deteriorate further, placing more stress on the company's turnaround prospects.

First Horizon shares closed up 49 cents, or 4.9 percent, at $10.42. The stock has traded between $4.38 and $21.77 in the past 52 weeks, and is down about 44 percent for the year.

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