First BanCorp in Puerto Rico Begins $63M Exchange Offer

First BanCorp in San Juan, P.R., is attempting to improve its capital position by converting preferred shares into common stock.

The exchange offer is pending the approval of two-thirds of each share class of preferred stock, a company spokesman said.

On Thursday, the parent company of the $13 billion-asset FirstBank Puerto Rico began an offer to exchange common stock for approximately $63 million of outstanding preferred stock. The bank is issuing over 10 million shares of new common stock for the offer, which it expects to close March 18.

The exchange is intended to improve the bank's capitalization and capital structure, it said in a filing with the Securities and Exchange Commission. Regulators prefer common stock to preferred stock for Tier 1 capital purposes, the company said. First BanCorp is under a written order with the Federal Reserve Bank of New York requires it to hold adequate capital ratios and prevents it from issuing debt or paying dividends without approval.

FirstBank Puerto Rico has a Tier 1 leverage ratio of 12.25% and a total risk-based capital ratio of 17.35%, according to the FDIC.

In addition, the exchange would prevent investors who hold the preferred stock from appointing members to the First BanCorp board, the company said in the SEC filing. The preferred stock contains the provision that stockholders will be able to appoint two members of the board if First BanCorp misses 18 dividend payments. The exchange will remove this provision, the company said.

The Treasury Department has a $424 million stake in First BanCorp through the Troubled Asset Relief Program. The largest holders of the company's common stock are private equity firm Thomas H. Lee Partner and Oaktree Capital Management, which each own just under 25%, and Wellington Capital Management, which owns slightly less than 10%.