We hinted at this yesterday, so it certainly doesn't come as a complete surprise. We started hearing yesterday that things were headed in this direction.
While it might seem a bit concerning for Tennessee to lose a four-star quarterback, this was much more of a mutual decision than it might appear on the surface. Things between UT and Kendall had gotten a bit complicated on both sides, with Kendall still exploring other options most notably Kentucky, where his older brother is a walk-on wide receiver and the Vols obviously still involved with at least one or two other QBs, including four-star Jarrett Guarantano.
It sounds like Kendall didn't really want Tennessee to continue recruiting other quarterbacks, and I don't think the Vols felt comfortable with that, given the uncertainty of his situation. I've even heard from a couple of people close to Kendall's recruitment that it was entirely possible that Kendall would have ended up at Kentucky, anyway, if the Wildcats had placed his brother on scholarship. With that still being a realistic possibility, I don't think Butch Jones and his staff believed it would have been a wise decision for them to stop recruiting other QBs while Kendall considered other schools.
It's certainly better for Tennessee to be dealing with this now rather than in October or November, so I don't think this will be a fatal blow at all for the Vols' class. Being back in the market for a QB will open other options that weren't previously in play for UT, and I think Tennessee is a strong contender for Guarantano going into his scheduled trip to Knoxville later this month.