Popular Inc to sell $568m non-performing loans

Popular Inc announced today that Banco Popular de Puerto Rico, its principal banking subsidiary, has entered into a definitive agreement to sell a portfolio of nonperforming commercial and construction loans, and commercial and single-family real estate owned, with a combined unpaid principal balance on loans and appraised value of other real estate owned of $1,022 million and book value of $568 million, to an entity majority owned by a joint venture between Caribbean Property Group LLC and certain affiliated funds of Perella Weinberg Partners Asset Based Value Strategy.

As a result of the sale, Popular will reduce its nonperforming assets by approximately 28 percent, or $568 million. This transaction will decrease commercial non-performing loans by approximately 57 percent, or $392 million, construction non-performing loans by approximately 45 percent, or $55 million, and other real estate owned by approximately 45 percent, or $121 million. Popular's pro-forma non-performing assets NPA ratio as of December 31, 2012 decreases from 5.48% to 3.95%. The assets subject to the transaction are part of Popular's non-covered portfolio in Puerto Rico and are not subject to the loss sharing agreements with the FDIC.

The transaction is expected to result in an after-tax loss of approximately $185 million, which will be recognized in the first quarter of 2013.

This transaction will substantially derisk our balance sheet and improve future profitability, said Popular Inc. Chairman and CEO Richard Carrión. The purchase price for the assets is equal to 34% of the unpaid principal balance of the loans and the appraised value of the other real estate owned as of the agreed cut-off date - (approximately $347 million), adjusted for certain collections and advances made after such 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.