FirstBank Puerto Rico has entered into three separate agreements to sell a total of $532 million bad commercial loans with a book value of $315 million, for $201 million, or 38 percent of the unpaid principal balance.
The bank will take a pre-tax loss of about $65 million in reserves. However, upon closing the deal, FirstBank will reduce its nonperforming assets by approximately 23 percent or $282 million. FirstBank’s non-performing asset-to-total-asset ratio as of Dec. 31, 2012 decreases from 9.45 percent to 7.30 percent, bank officials said.
“Through aggressive remediation, these transactions are a positive step as we work toward achieving our goal of substantially reducing problem assets. While there is an impact to earnings, these transactions greatly improve our credit risk profile,” said FirstBank President Aurelio Alemán. “In addition to improving our risk profile and reducing expenses, these transactions will free up time for management to focus on growth opportunities.”
On March 28, FirstBank completed the sale to Lone Star Funds of a portfolio of non-performing and classified commercial real estate loans, construction loans, and commercial loans with an unpaid principal balance of $378 million and book value of $216 million. The transaction will result in a pre-tax loss, net of reserves, of approximately $60 million, including estimated transaction expenses.
The purchase price for the assets is equal to 31.8 percent of the unpaid principal balance of the loans, or $120 million in an all cash transaction.
FirstBank has also entered into two other transactions — a definitive agreement and a Letter of Intent, with other third-party investors to sell an additional $154 million of unpaid principal balance and $99 million of book value in nonperforming commercial and construction loans, which could occur in the second quarter of 2013.
The combined sales price for the two transactions under agreement is $81 million, or 52 percent of unpaid principal balance. These transactions will result in a pre-tax loss net of reserves of approximately $5 million, the bank noted.