Combined, the portfolio has an unpaid principal balance on loans and appraised value of other REO of more than $1 million, while the book value is $568 million.
The agreement is expected to result in an after-tax loss of approximately $185 million for Banco Popular de Puerto Rico, which will be recognized in the first quarter of 2013, Popular said in a written release.
An entity owned by a joint venture between Caribbean Property Group LLC and certain affiliated funds of Perella Weinberg Partners Asset Based Value Strategy purchased this distressed portfolio from the financial institution.
Due to the sale, Popular will reduce its nonperforming assets by approximately 28%, or $568 million, the financial services firm stated. This transaction will decrease commercial nonperforming loans by nearly 57%, or $392 million, construction nonperforming loans by approximately 45%, or $55 million, and other REO by an estimated 45%, or $121 million.
As of Dec. 3, 2012, Popular’s pro-forma nonperforming assets ratio drops from 5.48% to 3.95%. Popular said that the assets included in this transaction are part of the bank’s non-covered portfolio in Puerto Rico and are not subject to the loss sharing agreements with the Federal Deposit Insurance Corporation.
“This transaction will substantially derisk our balance sheet and improve future profitability,” said Richard Carrion, chairman and CEO of Popular, Inc. “We agreed to sell a significant portion of our NPAs, and as a result, we expect substantial reductions in credit-related expenses going forward. We have significantly improved our credit risk profile and are better positioned to manage our capital more effectively.”
The purchase price for the assets is equal to 34% (approximately $347 million) of the unpaid principal balance of the loans and the appraised value of the other REO, adjusted for certain collections and advances made after the agreed cut-off date.
As consideration for the sale of the assets, Banco Popular will receive approximately $112 million in cash, a note for approximately $203 million as seller financing and a 24.9% equity interest in the purchasing entity. Banco Popular will also provide an advance facility of approximately $35 million to cover cost-to-complete amounts and expenses of certain projects, and a revolving working capital line of approximately $30 million to fund certain operating expenses of the venture.
Both parties agreed that no distributions of profits or return of capital may be made by the joint venture to its members until all the credit facilities have been paid in full and all commitments to lend are terminated. In addition, any distributions to the purchasing entity to its members, including Banco Popular, will be made on a pro rata basis according to their proportionate ownership interest.
“The structure of the sales agreement is similar to a previous sale of nonperforming loans we completed in 2011,” Carrion added. “The results of that transaction have been better than expected, including an accelerated payment of the facilities and an increase in the value of our joint venture interest.”