PacWest Bancorp’s stock rose Monday after the bank said it agreed to sell a $3.5 billion lender-finance loan portfolio to Ares Management Corp. in a deal expected to provide $2 billion before transaction costs for the bank.
Additional tranches to generate more cash are expected to close in “future periods” as unfunded commitments are disbursed and then sold, PacWest said.
PacWest’s stock
PACW,
moved up by about 5% in premarket trades. The stock has now more than doubled since its lows in early May as the bank failures of Silicon Valley Bank, Signature Bank and First Republic Bank impacted its share price. But even with its partial recovery in recent week, the stock has still lost about two-thirds of its value in 2023.
Truist analyst Brandon King said the loan deals have helped PacWest find itself on “much better footing now with improved liquidity and capital ratios.”
The company is well on its way to reaching a target of 10% common equity tier one capital, up from 9.22% at the end of the first quarter.
“We expect the company to pay down borrowings, which stood at $12 billion at the end of last quarter,” Kind said. “Additionally, we think other banks facing liquidity and capital issues may be more inclined to pursue loan sales given the appetite from non-bank lenders at non-haircuts.”
PacWest said the first tranche of its loan sale to Ares Management
ARES,
closed on June 22 when Ares bought an aggregate outstanding principal balance of $2.07 billion and assumed $187.14 million of the $1.33 billion unfunded commitment in the portfolio.
PacWest CEO Paul Taylor said the deal fits the bank’s effort to focus on relationship-based community banking.
It’s the second major loan portfolio sale by PacWest after it sold construction loans for $2.36 billion to Kennedy Wilson
KW,
in early June.
PacWest said the two deals “will improve our liquidity and our capital ratios” as part of a plan to consider strategic alternatives.
Ares Management said the deal includes “high quality, senior secured, asset-backed loans” backed by asset classes including consumer loans, small business loans, timeshare receivables, auto loans, asset manager and fund finance loans, residential real estate loans, and commercial real estate loans.
Ares partner Jeffrey Kramer said the deal will broaden and enhance the firm’s alternative credit portfolio through the purchase of “high-quality” loans.
PacWest CEO Paul Taylor said the deal fits the bank’s effort to focus on relationship-based community banking.
Ares said it has obtained financing from Barclays on the transaction, while Stephens advised PacWest.
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