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Kennedy Wilson lines up Fairfax Financial as buyer of PacWest loan portfolio

By Steve Gelsi

Kennedy Wilson Holdings Inc. said Monday it inked an agreement to sell to Canada's Fairfax Financial Holdings Ltd. a large portion of a previously announced purchase of a portfolio of real estate construction loans from PacWest Bancorp.

Kennedy Wilson (KW) and Fairfax Financial will purchase 63 of the 73 initial PacWest (PACW) loans for about $2.1 billion for loans with roughly $2.3 billion in aggregate principal currently outstanding, according to a filing. Fairfax's portion of the purchase is 95%.

Kennedy Wilson said it was working on finalizing arrangements with PacWest for "certain PacWest employees" that originated and currently manage the loans to join the company as employees during the second and third quarters of 2023.

Kennedy Wilson did not say how many PacWest employees would be included in the move.

Fairfax CEO Prem Watsa said the company was buying, "a stable and attractive loan portfolio that further strengthens the foundation of interest and dividend income-generating assets that will benefit Fairfax over the next two to three years."

Fairfax also agreed to make a $200 million preferred equity investment in Kennedy Wilson in the form of perpetual preferred stock with a 6% annual dividend rate, which is callable by Kennedy Wilson at any time. It also acquired seven-year warrants to buy up to 12.3 million shares with an initial strike price of $16.21 per share, or $199 million, based on Kennedy Wilson's closing price on June 2.

PacWest did not issue any statement on the deal.

PacWest stock fell 0.3%, while Kennedy Wilson's stock was down by 1.2%. Fairfax Financial's stock was up by 0.5%.

The company said that the aggregate principal balance of the floating-rate loans now carries an average interest rate of approximately 8.6%.

"Fairfax has entered into interest rate swap arrangements to effectively fix this rate over the life of the loans," the company said.

Also Read: Regional bank crisis may be far from over, experts warn

Fairfax said it expects the average annual return on the capital deployed by Fairfax in connection with the loans to exceed 10%.

More than 70% of the loans related to multifamily or student housing development projects with the balance being a mix of industrial, hotel and life science office property development projects.

PacWest sparked a rally in regional bank stocks on May 22 when it announced plans to sell up to 74 real estate loans with a principal balance of $2.6 billion to Kennedy Wilson.

PacWest stock has been volatile since the March collapse of Silicon Valley Bank and the takeover of First Republic Bank by JPMorgan Chase & Co. (JPM) in early May.

Also Read:PacWest sparks regional-bank rally after unveiling plan to sell loans worth $2.6 billion

Also Read:PacWest sells its real-estate lending business to Roc360

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


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06-05-23 1023ET

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