Fairfax Financial replaces Kennedy Wilson as majority buyer of $2B in PacWest loans

Fairfax Financial has struck a deal to replace Kennedy Wilson as the majority buyer of a construction loan portfolio from Pacific Western Bank, which has suffered from deposit outflows in the wake of the collapses of other regional lenders such as Silicon Valley Bank and First Republic Bank.

The Toronto-based insurance firm will pay $2 billion for 63 loans — about 95 percent of the portfolio, according to a release on Monday and a filing with the U.S. Securities and Exchange Commission.

Last month, Kennedy Wilson had agreed to purchase 74 construction loans from PacWest for $2.4 billion, which was a discount compared to the loans’ entire principal balance of $2.6 billion. 

Fairfax Financial will now buy 63 of the loans for $2.1 billion, while Kennedy Wilson will fund $100 million of the deal and hold a 5 percent stake. 

Kennedy Wilson has also struck a separate agreement with an “institutional investor,” which will buy 10 of PacWest’s construction loans, which together are valued at $500 million. 

When asked at the time whether the portfolio included any loans in default or delinquent loans, a Kennedy Wilson spokesperson declined to comment, saying the firm was still in due diligence. 

More than 70 percent of the loans are connected to multifamily or student housing development, according to Fairfax, with the remaining going towards industrial, hotel and life science projects. 

Fairfax will take responsibility for paying 95 percent of outstanding funding obligations under the loans, which is expected to cost about $1.8 billion, according to the SEC filing from Kennedy Wilson. Kennedy Wilson will pay the remaining 5 percent. 

Under the new deal with Fairfax, the insurance firm will also invest $200 million in Kennedy Wilson in the form of preferred equity. 

In a statement, Fairfax CEO Prem Watsa called the portfolio “stable and attractive” and “assets that will benefit Fairfax over the next two to three years.” 

PacWest’s share price has dropped about 73 percent since the beginning of March, when Silicon Valley Bank collapsed. And it has felt the effects for months — in the first week of May, PacWest lost about 9.5 percent of its total deposits.

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