Fitch Rates The South Financial Group Inc.'s Convertible Preferred Stock 'BB'

Business Wire, May 2, 2008

CHICAGO -- Fitch Ratings has assigned a 'BB' rating to the mandatory convertible non-cumulative preferred stock issued by The South Financial Group, Inc. (Nasdaq: TSFG, 'BBB-/F3', Negative Rating Outlook). The issuance consists of $250 million in series 2008 convertible preferred stock. These preferred shares pay a dividend of 10.00% and mandatorily convert into common equity shares of TSFG in three years. These securities will be treated as Tier 1 capital for regulatory capital purposes.

Fitch assigns class E (100% equity content) equity treatment to these securities, subject to the limitation that TSFG's aggregate hybrid securities not exceed 30% of eligible capital. The high equity content reflects the level of subordination and the non-cumulative structure of the preferred stock. Of note, once the conversion into common equity is accomplished, the security will no longer be subject to the hybrid capital limitation. Fitch notes that shareholder approval is required for conversion. Should common stock shareholders not approve the conversion prior to the conversion date, the dividend rate on the preferred shares increases considerably, but remains non-cumulative. This step-up feature is intended to encourage shareholder approval. TSFG intends to use the proceeds from this issuance for general corporate purposes and the repayment of short-term borrowings.

TSFG's Rating Outlook remains Negative. While the additional capital creates a larger buffer against ongoing earnings pressure, Fitch believes TSFG will continue to face elevated levels of problem assets and credit losses. Given Fitch's outlook for the housing market and general economic conditions, particularly in Florida, TSFG's internal equity generation will likely remain diminished in the near and intermediate term.

Fitch assigns the following rating with a Negative Outlook:

South Financial Group, Inc. (The)

--Preferred stock 'BB'.

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