First BanCorp Sells Loan Portfolio
First BanCorp has agreed to sell a loan portfolio with an unpaid principal balance of $516.7 million and a net book value of $438.5 million to a newly created joint venture in Puerto Rico.
The size of this loan pool agreement is $185 million less than the amount originally stated for on Dec. 7, 2010 when First BanCorp signed the letter of intent to sell the portfolio. The loan portfolio consists of 74% construction loans, 19% real estate loans and 7% commercial loans.
The buyer of the loan portfolio will be called Joint Venture and was organized under the laws of the commonwealth of Puerto Rico. Joint Venture will be majority owned by PRLP Ventures LLC, which is an investing company to be created by Goldman Sachs & Co. and Caribbean Property Group upon the closing of the transaction.
“The completion of this transaction is an important step in the corporation’s previously discussed strategic plan to improve the quality and performance of our loan portfolio,” said Aurelio Aleman, president and CEO of First BanCorp. “This transaction reduces our nonperforming loan portfolio by 17%. We thank Goldman Sachs & Co. and Caribbean Property Group in joining and creating this new joint venture with First BanCorp.”
Joint Venture purchased the loan portfolio for $275.9 million, which is 53.4% of the unpaid principal balance. The loan is being funded in three ways, including $90 million from an initial cash capital contribution by PRLP Ventures, $138 million from an acquisition loan to be provided by FirstBank Puerto Rico and $48 million associated with a 35% equity interests in the Joint Venture to be retained by FirstBank.
Under the agreement, FirstBank will extend an $80 million advance facility to finance unfunded commitments and costs to complete projects that are under construction. FirstBank will also contribute $20 million in a working capital line of credit to fund certain expenses of the joint venture.
With the loan sale, First BanCorp said its classified assets would be reduced by $410.3 million and its nonperforming loans would go down by $254.3 million. The corporation’s Puerto Rico loans will see decreases by 72% in construction, 16% in commercial real estate and 74% for classified residential construction.
In order for the transaction and pay structure to be completed, two requirements must be met by all parties.
The first rule says that the acquisition loan and other FirstBank sponsored financing must be paid down before any cash flow is received either by PLRP Ventures or FirstBank.
Secondly, the equity interest retained by FirstBank will entitle the company to receive cash flow after PRLP Ventures’s investment has been returned and it has earned a portion of its expected return. First BanCorp has to recognize a pretax loss of $101.7 million, with $60.9 million currently in the reserves of the loan portfolio’s net book value.
To finalize the transaction, Joint Venture will appoint CPG Island Servicing LLC, an affiliate of Caribbean Property Group, as the servicer of the purchased loans. CPG will then enter into a subservicing agreement with Archon Group LP, an affiliate of Goldman Sachs.