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The Puerto Rican company is looking to shore up its capital levels after the FDIC invalidated about 40% of its Tier 1 capital. Management will have plenty of challenges as it looks to fill the capital hole.
May 20
First BanCorp (FBP) in San Juan, Puerto Rico, has resolved a large outstanding loan to Doral Financial (DRL) by taking on $242 million on mortgages that were used as collateral for the loan.
The loans include nearly $234 million of first mortgages, purchased at par, and $8.4 million in second mortgages purchased at 5% of their outstanding balances, First BanCorp said in a
First BanCorp noted in its filing that the transaction eliminates its largest loan to a single borrower.
As consideration, FirstBancorp credited roughly $234 million as full satisfaction of the credit agreement and paid about $5,000 in cash to Doral. First BanCorp said in its filing that it is in process of determining the accounting impact of the transaction, including whether the purchases will result in a loss based on the fair values of the loans.
FirstBank said it conducted "usual and customary diligence" of the loans, including title searches, credit and collateral file reviews, and tax reviews, and the company said it hired an outside firm to conduct an extensive loan review. The agreement also includes certain protections for loans that do not conform to Doral's representations and warranties, though Doral's obligation to substitute or repurchase defective mortgages is limited to $10 million.
Doral will service the loans for up to 90 days after the deal's completion.
Doral faces an uncertain future after the Federal Deposit Insurance Corp. ordered the company to