Popular to sell $500M in bad construction loans, reclassifies U.S. mortgage portfolio
January 31, 2011050
Banco Popular (Credit: Víctor Román)
Popular Inc. continues taking steps toward improving its balance sheet with an announcement Monday that it has signed a non-binding letter of intent to sell approximately $500 million of construction and commercial real estate loans. Some 75 percent of the loans, which will be sold at book value, are non-performing.
The loans will be sold to a newly created joint venture with an unrelated third party, which will own the majority of the venture and that will pay a purchase price equal to 47 percent of the loans’ outstanding principal balance on record as of Dec. 31, 2010.
As part of its responsibilities in the joint venture, Banco Popular de Puerto Rico will: make an equity investment equal to 24.9 percent; provide the financing needed equal to 50 percent of the purchase price and certain closing costs to assist in the acquisition of the loans; and, provide financing to cover unfunded commitments related to certain unmentioned construction projects. The bank will also fund certain operating expenses of the venture.
The loans involved in the transaction are part of approximately $610 million worth of construction, commercial real estate and land loans that the bank reclassified as loans held-for-sale as of Dec. 31, 2010. The transaction is expected to close during the first quarter of 2011.
The sale represents one of two steps the company is taking to substantially reduce its non-performing assets, Popular Inc. said Monday.
In December, Popular Inc.’s stateside subsidiary Banco Popular North America, reclassified approximately $395 million of U.S. non-conforming residential mortgage loans as available-for-sale, for which it is also seeking alternatives.
“These transactions will result in a substantial reduction of our non-performing assets,” said Richard L. Carrión, CEO of Popular Inc. “This is another important step towards resolving our legacy issues and positioning the corporation for the future.”
The reclassification of the U.S. and Puerto Rico portfolios will negatively impact pre-tax, fourth-quarter earnings by approximately $190 million.
The announcements are the latest in a string of changes that Popular Inc. has been implementing in the last two years to make its operation leaner and increase liquidity.