Fitch Places First BanCorp on Rating Watch Positive Following Equity Raise

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has placed the 'CC' long-term Issuer Default Ratings (IDRs) of First BanCorp (FBP) and its main subsidiary, Firstbank Puerto Rico on Rating Watch Positive. A complete list of rating actions follows at the end of this release.

Today's rating action follows the company's announcement that it completed its $525 million equity raise to institutional investors. FBP issued 150 million shares of common stock at a purchase price of $3.50 per share. Thomas H. Lee Partners, L.P. (THL) and two funds managed by Oaktree Capital Management, L.P. (Oaktree) purchased about $348.2 million (or $174.1 million per investor) representing about 24.4% of the outstanding common stock. The remaining $176.8 million capital was invested by institutional investors and other private equity firms.

As the company had previously outlined in its capital plans, the U.S. Treasury department converted its $424.2 million outstanding of Fixed Rate Cumulative Mandatorily Convertible Preferred Stock Series G issued under Capital Purchases Program (CPP), into common stock. Fitch estimates a 78% discount on the U.S. Treasury's preferred stock conversion based on the issuance of 32,941,797 common shares at a stock price closed at $2.72 on Oct. 7, 2011 valuing the equity investment at about $89.6 million.

The Rating Watch Positive reflects Fitch's view that the recapitalization of FBP enhances the company's capital position and provides a buffer for potential losses. Resolution of the Rating Watch would follow an assessment of the company's prospects for returning to profitability and determining the adequacy of the new capital levels relative to its remaining problem assets.

Separately, Fitch has downgraded FBP's Viability Rating to 'f' from 'cc', indicating Fitch's opinion that FBP would have defaulted if it had not received some form of external support - namely the capital infusion and the U.S. Treasury's willingness to convert its preferred stock into common shares on a discounted basis to facilitate the transaction. (For additional details on FBP's viability rating, see Fitch's previous press dated Nov. 24, 2010.) As per Fitch's Global Financial Institutions Rating Criteria, the 'f' Individual Rating is retrospective in character, and financial institutions at this rating level will be re-rated on the basis of their supported financial strength after at least one month.

FBP is the second largest locally owned bank in Puerto Rico with total assets of $14.1 billion at June 30, 2011. FBP has the third largest branch network on the island with 47 branches throughout Puerto Rico. The company also has offices in Florida and the U.S. Virgin Islands.

In performing its analysis of Recovery Ratings, Fitch employed some assumptions that were more conservative than those outlined in its criteria 'Recovery Ratings for Financial Institutions' dated Dec. 30, 2009. Some of the recovery rates for certain loan categories were assumed to be lower to reflect the current distressed credit environment.

Fitch has placed the following ratings on Rating Watch Positive:

First BanCorp
--Long-term IDR 'CC';
--Short-term IDR 'C'.

FirstBank Puerto Rico
--Long-term IDR 'CC';
--Long-term deposit obligations 'CCC/RR3';
--Market Linked deposit securities 'CCCemr/RR3';
--Short-term IDR 'C';
--Short-term Deposits 'C'.

Fitch has downgraded the following ratings:

First BanCorp
--Viability to 'f' from 'cc';
--Individual to 'F' from 'E'.

FirstBank Puerto Rico
--Viability to 'f' from 'cc';
--Individual to 'F' from 'E'.

The following ratings were affirmed:

First BanCorp
--Support '5'.
--Support floor 'NF'.

FirstBank Puerto Rico
--Support '5'.
--Support floor 'NF'.

Additional information is available at www.fitchratings.com. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011);
--'Bank Holding Companies' (Aug. 16, 2011).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171
Bank Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612

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