New York, May 05, 2017 -- Moody's Investor Service affirmed the ratings of First Horizon National
Corporation and its subsidiaries (First Horizon) following the announcement
by First Horizon that is has agreed to acquire Capital Bank Financial
Corp (Capital Bank) in a 80% stock, 20% cash transaction.
The affirmed ratings include First Horizon National Corporation's
Baa3 issuer and senior unsecured ratings and its preferred non-cumulative
stock rating of Ba2(hyb). At First Horizon's bank subsidiary,
First Tennessee Bank, National Association, the baa2 baseline
credit assessment, the baa2 adjusted baseline credit assessment,
the A3 long-term and Prime-2 short-term deposit ratings,
Baa3 issuer and senior unsecured ratings, Ba2(hyb) preferred non-cumulative
stock rating and the Baa1(cr) long-term and Prime-2(cr)
short-term counterparty risk assessments (CR Assessments) were
affirmed. The outlook is stable.
Issuer: First Horizon National Corporation
....Issuer Rating, Affirmed Baa3,
Stable
....Non-cumulative Preferred Stock,
Affirmed Ba2 (hyb)
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3, Stable
..Outlook Actions:
....Outlook, Remains Stable
Issuer: First Tennessee Bank, National Association
.... Long Term Deposit Rating, Affirmed
A3, Stable
.... Short Term Deposit Rating, Affirmed
P-2
... Issuer Rating, Affirmed Baa3, Stable
.... Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3, Stable
.... Adjusted Baseline Credit Assessment,
Affirmed baa2
.... Baseline Credit Assessment, Affirmed
baa2
.... Long Term Counterparty Risk Assessment,
Affirmed Baa1(cr)
.... Short Term Counterparty Risk Assessment,
Affirmed P-2(cr)
....Non-cumulative Preferred Stock,
Affirmed Ba2 (hyb)
..Outlook Actions:
....Outlook, Remains Stable
Issuer: First Tennessee Real Estate Securities Co Inc
....Preferred Stock, Affirmed Ba1 (hyb)
RATINGS RATIONALE
The affirmation reflects Moody's view that First Horizon's
acquisition of Capital Bank Financial Corp (unrated) does not weaken its
credit profile. However, the rating agency added that the
acquisition negates some of First Horizon's credit positive momentum
of recent years. The acquisition will result in lower capital ratios,
which remains First Horizon's major credit challenge.
Capital Bank operates in markets contiguous to First Horizon's footprint,
with the exception of Capital Bank's small South Florida presence,
and its loan portfolio is similar in composition to First Horizon.
First Horizon's commercial real estate exposure will remain contained.
After taking a 1.5% credit mark, pro forma asset quality
metrics improve.
The acquisition does reduce First Horizon's capital ratios.
Currently, its Moody's tangible common equity as a percentage
of risk weighted assets is 9%. On a pro forma basis,
the ratio will fall to approximately 8.2%. Furthermore,
the acquisition of Capital Bank is comparatively large. At $10
billion in assets, it is roughly one third the size of First Horizon.
While an acquisition of this magnitude poses integration risks,
Moody's believes First Horizon's current ratings level incorporates
this risk.
The affirmation also reflects First Horizon's improved asset risk
as well as its solid core retail banking franchise in Tennessee,
which supports its core deposit funding profile. Following the
Great Recession, First Horizon's national mortgage business
resulted in sizeable mortgage repurchase provisions, litigation
risk and high problem loans. While risks remain, a number
of settlements have reduced First Horizon's tail risk. Furthermore,
First Horizon's run-off loan portfolio, which consists
mainly of national home equity exposure from its legacy mortgage business,
has shrunk and now accounts for 7% of total loans at year-end
2016. Additionally, First Horizon's problem loans have
improved to 2.2% at year-end 2016 from 4.5%
three years prior.
First Horizon's ratings also incorporate its weak profitability
which has been pressured by elevated legal expenses and low interest rates,
depressing its net interest margin. Higher interest rates and the
expectation of lower litigation costs should result in improved profitability,
said Moody's.
What Could Change the Rating Up
Positive rating pressure could emerge from a sustained improvement in
First Horizon's capital ratios while maintaining good asset quality
performance.
What Could Change the Rating Down
Negative rating pressure could emerge from further weakening in First
Horizon's capital metrics and/or a deterioration in asset quality
in either First Horizon's originated portfolio or acquired portfolio.
The principal methodology used in these ratings was Banks published in
January 2016. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Megan Snyder
Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Gregory W. Bauer
MD - Global Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
