SAN JUAN, Puerto Rico, Dec. 19 /PRNewswire-FirstCall/ -- First BanCorp and San Geronimo Caribe Project, Inc. today filed a declaratory judgment lawsuit in San Juan Superior Court in reaction to the opinion issued by the Secretary of Justice of the Commonwealth of Puerto Rico relating to his determination that certain of the parcels of land upon which the Paseo Caribe project is being built are of public domain. In the legal action filed today, the court is being requested to issue an injunctive type order to have the Puerto Rico Permits Administration (ARPE) cease and desist from continuing its proceedings to suspend the on-going construction of the Paseo Caribe site.
First BanCorp's Position on the Opinion by the Secretary of Justice of the Commonwealth of Puerto Rico
On December 11, 2007, the Secretary of Justice of the Commonwealth of Puerto Rico issued an opinion stating that various of the parcels of land upon which construction of the Paseo Caribe project is being conducted are public domain and therefore not susceptible to sale to private parties. The Paseo Caribe project is a five-phase multi-use complex with residential, commercial and condo-hotel facilities. First BanCorp, through its subsidiary bank FirstBank de Puerto Rico, has been the lead lender in this project with approximately $118 million in current loan balance. The controversy arises from the Justice Secretary's opinion that tracts of lands on which part of the construction is currently underway were submerged coastal land that was filled by the US Navy in the early 1940's with the permission of the government of Puerto Rico. In the early 1990's, the land upon which most of the construction is being conducted was sold by the US Navy to the Puerto Rico Land Administration and, shortly thereafter, the land Administration transferred it to the Tourism Company. In 1998, the Tourism Company sold the property to Hilton International and in 1999 Hilton International sold certain tracts of land to San Geronimo Development Corporation with the condition that it develop the property. At the time of the closing of the financing, FirstBank requested a legal opinion from its outside legal counsel regarding the validity of title of the relevant parcels of land. FirstBank counsel opined at such time that Paseo Caribe held legal and valid title to the lands. Furthermore, FirstBank obtained title insurance as part of the financing agreement. Accordingly, the Corporation understands that at the time the financing for the projects of the Paseo Caribe development was approved, the developer had full legal and marketable title to the properties in question. The Corporation understands that the parcels of land at no time constituted public domain property.
First BanCorp has filed a declaratory judgment lawsuit in San Juan Superior Court requesting that the court declare that the tracts of land in question never constituted public domain property. First BanCorp firmly believes that these lands were freely marketable and therefore susceptible to being sold to private parties. It is confident that proceeding through the corresponding legal venues, the Bank's financing of the Paseo Caribe project and the security interest on the properties it has retained as collateral to the financing will be upheld. The Corporation believes that due to the urgency of this important issue, it has been compelled to take the necessary legal action in order to protect the Bank's interest.
Details on Project Financing
The Corporation has approximately $43 million in outstanding loans that are attributable to the tracts of land that the current Justice Secretary has opined to be in the public domain. These loans have interest reserves; therefore, the 60-day permit suspension, if finally issued, will not have an effect on the Corporation's earnings or non-performing loans.
At this time, the Corporation does not foresee that the loans will have to be placed in non-accrual status. In the unforeseeable event that the properties are deemed to be in public domain, the Secretary of Justice indicated that the properties will end up in a condemnation proceeding, resulting in the payment of fair value to the developer which will in turn result in the full collection of the loans.
There are other loans with the same developer but the properties collateralizing such loans are not under controversy.
About First BanCorp
First BanCorp is the parent corporation of FirstBank Puerto Rico, a state- chartered commercial bank with operations in Puerto Rico, the Virgin Islands and Florida; of FirstBank Insurance Agency; and of Ponce General Corporation. First BanCorp, FirstBank Puerto Rico and FirstBank Florida, formerly Unibank, the thrift subsidiary of Ponce General, all operate within U.S. banking laws and regulations. The Corporation operates a total of 153 financial services facilities throughout Puerto Rico, the U.S. and British Virgin Islands, and Florida. Among the subsidiaries of FirstBank Puerto Rico are Money Express, a finance company; First Leasing and Car Rental, a car and truck rental leasing company; and FirstMortgage, a mortgage origination company. In the U.S. Virgin Islands, FirstBank operates First Insurance VI, an insurance agency and First Express, a small loan company. First BanCorp's common and preferred shares trade on the New York Stock Exchange under the symbols FBP, FBPPrA, FBPPrB, FBPPrC, FBPPrD and FBPPrE.
Safe Harbor
This press release may contain "forward-looking statements" concerning First BanCorp's (the "Corporation") future economic performance. The words or phrases "expect," "anticipate," "look forward," "should," "believes" and similar expressions are meant to identify "forward-looking statements" within the meaning of the Private Securities Litigation reform Act of 1995. The Corporation wishes to caution readers not to place undue reliance on any such "forward-looking statements," which speak only as of the date made, and to advise readers that various factors, including, the deteriorating economic conditions in Puerto Rico, the ability to obtain a final order approving the settlement of the shareholder litigation, interest rate risk relating to the secured loans to Doral Financial Corporation and R&G Financial Corporation, the continued repayment by Doral and R&G Financial of their outstanding loans, the impact on net income of the reduction in net interest income resulting from the repayment of a significant amount of the commercial loans to Doral, the impact of the consent orders on the Corporation's future operations and results, the Corporation's ability to continue to implement the terms of the consent orders, FirstBank's ability to issue brokered certificates of deposit, its liquidity, the ability to fund operations, changes in the interest rate environment, the deteriorating regional and national economic conditions, including the risks arising from credit and other risks of the Corporation's lending and investment activities, particularly the condo conversion loans in its Miami Agency, competitive and regulatory factors and legislative changes, could affect the Corporation's financial performance and could cause the Corporation's actual results for future periods to differ materially from those anticipated or projected. The Corporation does not undertake, and specifically disclaims any obligation, to update any "forward-looking statements" to reflect occurrences or unanticipated events or circumstances after the date of such statements.
