PacWest Sells CRE Loan Portfolio to Kennedy-Wilson for $2.4B
The regional bank is shoring up its balance sheet by selling 74 loans at a $200 million discount.
Seeking to shore up its balance sheet, troubled regional bank PacWest Bancorp has agreed to a sell a portfolio encompassing 74 construction loans to Kennedy-Wilson Holdings for $2.4B, a discount of $200M, according to a report in Reuters.
Kennedy-Wilson said it will also assume $2.7B in potential funding obligations associated with the loans, and will take over, subject to clearances secured by PacWest, an additional six real estate construction loans with a balance estimated at $363M, according to a regulatory filing.
PacWest has lost three-quarters of its market value since the beginning of the banking crisis in March. The bank has been the focus of concerns following the collapse of three other regional banks, Silicon Valley Bank, Signature Bank and First Republic.
As part of the deal, PacWest will have to pay Kennedy-Wilson a fee equal to 0.15% of the total commitments of the loans.
The loans involved in the deals carry floating interest rates that currently average 8.4%. According to Reuters’ report, the floating rates allowed PacWest to sell the construction loans at a small discount that reflected a decline in the value of the underlying assets, rather than a rise in interest rates.
In a statement, the PacWest said the agreement is “consistent with the previously announced strategy of PacWest Bancorp to pursue strategic asset sales and focus on our core community banking business.”
“We believe the decline in risk-weighted assets should offset the loss (from the sale of the loans at a discount), which should result in a modest improvement in regulatory capital ratios,” Wedbush analysts said in a note.
“It takes pressure off the bank from the funding side as they dispose of these loans—they won’t have to fund that part of the portfolio,” Gary Tenner, managing director at D.A. Davidson told Reuters.
PacWest had indicated earlier this month that it was conducting talks with potential partners about its strategic options.
The bank also said it had posted more collateral to the federal reserve in order to boost its liquidity. PacWest raised $1.4B in March from Atlas Partners by borrowing against some of its assets.
Another troubled regional bank, Western Alliance, announced last week it grew deposits by more than $2B since the end of the first quarter.