Banco Popular de Puerto Rico, the principal banking subsidiary of Popular Inc., in January signed a letter of intent to sell approximately $500 million of construction and commercial real estate loans. The transaction is expected to close before the first quarter of 2011 ends.
An unrelated third party, who was not identified, acquired the property 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.
The transactions will result in a substantial reduction of the company’s nonperforming assets and are considered a key step toward resolving the company’s legacy issues, Richard Carrion, chairman and chief executive officer of Popular Inc., said in a press release.
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 $190 million.
