Popular Inc. is planning to sell its $75 million Puerto Rico Electric Power Authority line of credit at a 40% discount.
Popular Inc. is the parent company of Banco Popular, one of the biggest banks in Puerto Rico. Popular made the announcement on an investor call on July 24.
The line of credit has been put on hold for sale status. Popular has not announced who the potential buyer is.
"The total amount was so small relative to their capital base ($75 million vs. $4.3 billion tangible common equity) that [Popular] management probably was not overly concerned with the negligible hit to income/capital in order to put this issue to rest," equities research analyst at Guggenheim Securities Taylor Brodarick wrote in an email.
"Also, with this credit in forbearance, the creditor isn't receiving any interest income from it. We think Banco Popular probably thought it was better to get 60% than risk getting a lower amount at a later date," Brodarick continued.
The $75 million line of credit is part of a $550 million line of credit PREPA owes to Puerto Rican banks. Besides the money owed Banco Popular, PREPA owes $200 million to Scotiabank de Puerto Rico, $200 million to Oriental Bank, and $75 million to First Bank Puerto Rico.
Reuters reported in May that a $146 million line of credit to PREPA was sold by New York-based Citi to Solus Alternative Asset Management.
Both First Bank and Oriental Bank have taken provisions for their lines of credit, Brodarick said. They may or may not follow Banco Popular in selling their stake.
PREPA has been in a financial crisis since the summer of 2014, when it entered forbearance with its creditors. It has committed itself to reaching a comprehensive debt restructuring plan with its creditors by Sept. 1. PREPA has roughly $8.3 billion in bond debt and roughly $900 million in additional debt outstanding.
