Attached files
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| 8-K - FORM 8-K - DORAL FINANCIAL CORP | g25463e8vk.htm |
Exhibit 99.1
December 2, 2010
CONFIDENTIAL
Board of Directors
First BanCorp
1519 Ponce Leon Ave.
San Juan, PR 00908-0146
First BanCorp
1519 Ponce Leon Ave.
San Juan, PR 00908-0146
Lady and Gentlemen:
As we discussed with your Chief Executive Officer via a call, we are pleased to express our
interest in Doral Financial Corporation (“Doral”) acquiring First BanCorp (“First BanCorp”) and
merging our two franchises. We believe that the combination of Doral and First BanCorp is an
excellent fit, creating a combined franchise with greater scale, increased diversification and a
more efficient cost structure than either company has alone. We are confident this combination
would provide our customers with the premier banking franchise in Puerto Rico.
We have been following with great interest First BanCorp’s efforts over the past several
months to raise capital and comply with various regulatory orders, and we believe that our proposal
presents the most viable alternative for First BanCorp and its shareholders. Taking into account
First BanCorp’s estimate of lifetime credit losses as described in its offering materials, we
believe we can combine our companies on a basis that would be financially attractive to both sets
of shareholders and would not require external assistance. Our proposal contemplates a
stock-for-stock transaction where First BanCorp’s shareholders would receive Doral’s stock,
providing them the ability to share in the attractive returns and future growth potential of the
combined company. Based upon current market conditions, this proposal offers a purchase price of
$0.30/share to First BanCorp’s shareholders, representing a premium to current market price. We
would augment our pro forma capital levels with an additional $550 million in common equity raised
from investors. Additionally, we would expect that at the closing of the transaction, the First
BanCorp preferred currently held by the U.S. Treasury would be exchanged at a discount for common
stock of the combined company.
We believe that this consolidation will be extremely beneficial for the health of the larger
Puerto Rican banking market. The combined Doral/First BanCorp would be the second largest bank in
Puerto Rico in terms of deposits with an approximately 20.0% market share. This will ensure that
there is another large, well capitalized bank headquartered in Puerto Rico. The pro forma balance
sheet would be highly diversified, with lower interest rate risk, improved credit quality and less
reliance on brokered CDs as compared to either institution on a stand-alone basis. Based on our
work to date, we believe that the combined company would have a TCE/TA ratio in excess of 10% and a
Tier 1 Leverage ratio in excess of 8%. This capital position would improve further over time based
on the approximately $300 million of pre-tax, pre-provision earnings the combined company would
generate annually. We would also note that it is our full intention to maintain and enhance the
services and product offerings available to customers and to continue our combined community
programs.
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We are confident in our ability to complete this transaction. We have engaged in discussions
with our banking regulators and believe this transaction would be well received. Moreover,
although First BanCorp has been unable thus far to raise new capital on a stand-alone basis, we
strongly believe
that a combined Doral/First BanCorp would present a compelling opportunity to the investor
community. We would also point out that Doral has a proven track record of raising capital on a
stand-alone basis, having raised over $787 million over the past 3 years. Our team is highly
proficient in efficiently executing complex transactions, and we believe that we would be in a
position to complete due diligence and execute definitive documentation within an expedited
timeframe. Doral’s management team has successfully acquired and integrated several companies in
the course of their careers and our company has extensive experience in residential, construction
and commercial loan workouts. Our Board of Directors is also highly supportive of this
transaction.
We have augmented the Doral deal team with our two financial advisors, Credit Suisse
Securities (USA) LLC and FBR Capital Markets & Co., and our legal advisor, Skadden, Arps, Slate,
Meagher & Flom LLP. We have also assembled a team of due diligence and integration advisors ready
to move forward immediately. The contact information for our team is as follows:
Glen Wakeman
|
Neil Carragher | |
President and CEO
|
Credit Suisse Securities | |
Doral Financial Corporation
|
Phone: (212) 325 4443 | |
| Email: neil.carragher@credit-suisse.com
|
||
1451 FD Roosevelt Avenue
|
FBR Capital Markets & Co | |
San Juan, PR 00920-2717 Phone: (787) 474-6725 Email: glen.wakeman@doralfinancial.com |
Phone: (703) 469 1199 Email: kstein@fbr.com |
Enclosed for your consideration are materials prepared by our financial advisors setting forth
our preliminary analysis of the financial terms of the proposed transaction. We would welcome the
opportunity to meet with you to further discuss these materials and our proposal.
We are very excited about this opportunity and look forward to hearing from you soon.
| Very truly yours, | ||
 |
||
| Glen Wakeman | ||
| President and Chief Executive Officer | ||
| Doral Financial Corporation |
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* * *
Our proposal is non-binding and is subject to, among other things, the satisfactory completion of
due diligence and the negotiation and execution of mutually acceptable definitive agreements.
Accordingly, this letter does not constitute or create any commitment, undertaking or other binding
obligation or limitation on the part of any person in any respect. Only those obligations set
forth in definitive agreements will be binding upon the parties.
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| Proposed transaction December 2, 2010 |
| Transaction structure - summary Doral acquires First BanCorp in a stock-for-stock transaction Purchase price of $0.30/share represents a premium to current market price Conversion of First BanCorp's TARP preferred (at a discount to be agreed with the Treasury Department) into common shares of Doral Assumed credit mark equal to adverse case loss estimate disclosed by First BanCorp in its marketing materials Fair value mark of ~$1.4Bn on loan portfolio, implies a net credit mark of ~$800mm net of ~$600mm reported ALLL Ahead of transaction closing, Doral would raise [$550mm] of common equity, with transaction sizing targeted to meet a minimum Tier 1 Leverage ratio at closing of 8% Pro forma entity will be a stronger, better capitalized bank with significant capital generation Significant cost savings (estimated to be in excess of $100mm per annum) Pro-forma net income of $150mm based on ~$300mm in pre-tax, pre-provision earnings Ability to utilize First BanCorp's DTA Deleveraging of combined balance sheet (1) Based on First BanCorp's adverse case losses, net of interim net charge-offs ahead of transaction close (2) Analysis assumes no divestitures. We would need to discuss with First BanCorp the likelihood of such divestitures in the San Juan market, and if required, the affect of any divestitures on our analysis (1) 1 (2) |
| Pro forma Franchise Source: SNL Financial and FDIC Call reports; Pro forma metrics not adjusted for purchase accounting or other transaction related adjustments. Note: Regulatory financials as of 9/30/10. (1) Rank based on deposits. (2) Domestic, non-brokered deposits. (3) Earning assets include gross loans, securities, and cash & equivalents. (4) Assumes all brokered deposits are time deposits. (1) Funding mix Earning asset mix Doral First BanCorp Pro forma Puerto Rico footprint Total: $ 8,328 $ in millions Total: $24,888 Total: $8,162 Total: $23,519 (3) Total: $15,357 Total: $16,560 Market Share: Creates Strong #2 Franchise (1) (2) (3) 2 (4) (4) (4) |
| Transaction Rationale Current First BanCorp investors Addresses current regulatory concerns Preserves value for current shareholders and creditors Provides access to value created through cost savings and other efficiencies Doral shareholders Provides scalable platform in a highly competitive market Diversifies earnings base Provides access to value created through cost savings and other efficiencies The transaction will benefit all key stakeholders 3 New equity investors Last remaining public consolidation play in Puerto Rico Loan write-downs substantially reduce credit risk Realizes consolidation benefits...$100MM+ cost savings First BanCorp Customers Access to wider set of loan and deposit products Scale for improved service offerings Earnings power to fund continued technology investments Creates healthier, more stable local banking market |
| 4 Doral's Execution Capabilities Workout & Collections: Reduced classified assets by over $500MM over last two quarters Capital: Raised over $787MM over past 3 years $610 MM recapitalization in 2007 $177MM in capital to support FDIC assisted transactions ($600MM in capital commitments) Balance Sheet Management: De-levered company by ~$9B since 2006 Utilizes Doral's Experience Enhanced by World-class Diligence and Integration Partners Financial advisors Credit Suisse and FBR Capital Markets Accounting and tax [Redacted- Confidential] Loan due diligence [Redacted- Confidential] Work-out [Redacted- Confidential] Integration planning [Redacted- Confidential] Servicing / technology [Redacted- Confidential] |