Popular Ends Negotiations to Sell Nonperforming Assets

Banco Popular de Puerto Rico, the principal banking subsidiary of Popular Inc., has terminated negotiations regarding the sale of a portfolio of nonperforming construction and commercial real estate loans.

On Jan. 31, the bank signed a letter of intent to sell approximately $500 million of nonperforming assets to an unrelated real estate investment and asset management firm.

The new joint venture entity was to be sponsored by the financial group by 50% of the purchase price and certain closing costs. The bank was also going to finance unfunded commitments related to construction projects and fund certain operating expenses of the venture.

However, the bank said the deal ended because the parties could not agree on the “final terms and conditions of the definitive documentation.”

“After careful consideration and a review of final terms and conditions proposed by the financial group, which differ in various key respects from those outlined in the letter of intent, we have decided not to proceed with this transaction,” said Richard Carrion, chairman of the board and CEO of Popular Inc.

“Although we are disappointed that we were unable to complete the transaction as originally envisioned, we believe that this is the best decision for the corporation and its shareholders.”

The unrelated third party, who was not identified, acquired the asset for a purchase price equal to 47% of the unpaid principal balance at the end of 2010.

Popular Inc. said 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.

Carrion said the transaction was going to substantially reduce the corporation’s nonperforming assets, as it was prepared to make a 24.9% equity investment by completing the venture.

“We will continue to explore other opportunities to sell these assets in one or more transactions, as well as internal strategies to maximize our recoveries,” Carrion said.