Fitch rates South Financial convertibles BB

Fitch Ratings said it assigned a BB rating to the $250 million series 2008 mandatory convertible non-cumulative preferred stock issued by South Financial Group, Inc. (BBB-/F3).

The outlook is negative.

These preferred shares pay a dividend of 10% and mandatorily convert into common equity shares in three years. Proceeds will be used for general corporate purposes and to repay short-term borrowings.

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

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