Popular Sells Nonperforming Assets
Banco Popular de Puerto Rico, the principal banking subsidiary of Popular Inc., signed a letter of intent to sell approximately $500 million of construction and commercial real estate loans.
An unrelated third party acquired the property for a purchase price equal to 47% of the unpaid principal balance at the end of 2010.
Popular Inc. said approximately 75% of the loans were nonperforming and made up a portfolio of about $610 million of construction, commercial real estate and land loans that were reclassified as loans held-for-sale.
“These transactions will result in a substantial reduction of our nonperforming assets,” said Richard Carrion, chairman of the board and chief executive officer of Popular Inc. “This is another important step towards resolving our legacy issues and positioning the corporation for the future.”
As part of the Puerto Rico transaction, Banco Popular de Puerto Rico will make a 24.9% equity investment in the venture.
Banco Popular will provide financing to the venture for the acquisition of the loans in the amount equal to 50% of the purchase price and certain closing costs. The bank will also supply financing to cover unfunded commitments that are related to construction projects and fund certain operating expenses of the venture.
At the end of 2010, Popular’s U.S. banking subsidiary, Banco Popular North America, reclassified approximately $395 million of nonconforming residential mortgage loans as loans available-for-sale. The bank is pursuing potential loan sales alternatives.
The reclassification of both the U.S. and Puerto Rico portfolios will negatively impact pretax fourth-quarter earnings by approximately $190 million.
The transaction for Banco Popular de Puerto Rico is expected to close during the first quarter of 2011.