Pacific Western Bank, in need of cash following withdrawals and turmoil among regional banks, saw its stock surge after it agreed to sell construction loans to global real estate investor Kennedy-Wilson Holdings.
Kennedy-Wilson based in Beverly Hills, California, plans to acquire 74 real estate construction loans for $2.4 billion, according to the company’s filing Monday with the Securities and Exchange Commission. The floating-rate loans have an outstanding balance of $2.6 billion and future funding obligations of up to $2.7 billion, with an average interest rate of about 8.4%.
Kennedy-Wilson began aggressively expanding its debt investments just a year ago, and this deal would nearly double its current debt investments as of year-end 2022, according to Kennedy-Wilson’s previous SEC filings.
For PacWest, also based in Beverly Hills, the sale is a continuation of strategic asset sales the bank began exploring when customers withdrew $2.7 billion in deposits in March as the banking failure of Silicon Valley Bank rattled markets. Banking regulators took over an additional two regional banks in the following weeks, Signature Bank and First Republic Bank.
Representatives of PacWest and Kennedy-Wilson did not immediately respond to requests for additional information regarding the loan sale agreement.
Earlier this month, PacWest said it was exploring all options to maximize shareholder value.
Among asset sales, it mentioned that a planned disposition of a $2.7 billion lender finance loan portfolio was on track. In addition, it added it had been approached by several potential partners and investors about other options but did not indicate what those options were.
PacWest’s stock price rose more than 20% Monday on the news of the construction loan sales. The bank holding company’s stock price traded as high as $27.99 per share in early March.
In addition, Kennedy-Wilson has also agreed to purchase from PacWest an additional six real estate construction loans with an aggregate principal balance of about $363 million if PacWest secures borrower consent.
Kennedy-Wilson anticipates hiring certain members of PacWest’s loan team that originated and are currently managing the loans.
A year ago, Kennedy-Wilson announced the expansion of its global debt joint venture to over $6 billion. The joint venture includes partners across insurance and sovereign wealth investors.
As of year-end 2022, it held interests in 39 loans, 87% of which have floating interest rates, with collateral located in the western United States and the United Kingdom, with an average interest rate of 10% per year and an unpaid principal balance of $2.4 billion.
The loan portfolio is focused primarily on performing loans.
The PacWest transaction is currently expected to close in multiple stages during the second and early part of the third quarter.