Kennedy Wilson Holdings Inc. announced Monday that it had signed an agreement with Fairfax Financial Holdings Ltd. to sell a significant portion of the portfolio of real estate development loans purchased by PacWest Bancorp.

According to a filing, Kennedy Wilson KW, -2.5% and Fairfax Financial FFH, 0.04 % are buying 63 out of the initial 73 PacWest PACW, 2.76 % loan for $2.1 billion. The loans have a principal balance of $2.3 billion. Fairfax is responsible for 95% of the total purchase price.

Kennedy Wilson announced that it is working to finalize arrangements with PacWest so “certain PacWest staff” who originated and manage the loans will join the company in the second and third quarters 2023.

Kennedy Wilson didn’t say how many PacWest workers would be affected by the move.

Fairfax CEO Prem Watsa stated that the company purchased “a stable, attractive loan portfolio which further strengthens Fairfax’s foundation of income-generating assets such as interest and dividends.”

Fairfax has also agreed to invest $200 million in Kennedy Wilson as perpetual preferred stock, with a dividend of 6% per year. Kennedy Wilson can call the investment at any time. Fairfax also purchased seven-year warrants for up to 12,3 million shares at an initial strike of $16.21 per stock, or $199 millions, based upon Kennedy Wilson’s June 2 closing price.

PacWest has not issued a statement regarding the transaction.

The stock of Kennedy Wilson fell by 1.2%, while that of PacWest dropped 0.3%. Fairfax Financial stock rose by 0.5%.

The company stated that the average interest rate on the principal balances of floating-rate loans is now approximately 8.6%.

Fairfax said that it had entered into interest rate swap agreements to fix the rate for the entire life of the loan.

Experts warn that the regional bank crisis is not over yet

Fairfax expects that the average annual return of the capital invested by Fairfax to be greater than 10%.

The majority of loans were for multifamily housing or student housing projects. The balance was a mixture of hotel, industrial and life science property development projects.

PacWest’s announcement that it would sell up to 74 mortgages , with a principal of $2.6 billion, to Kennedy Wilson on May 22 triggered a rally among regional banks.

PacWest’s stock has been volatile ever since March, when Silicon Valley Bank collapsed and JPMorgan Chase & Co. JPM -1.17% took over First Republic Bank in early May.

Also read: PacWest spurs regional bank rally after unveiling plan of selling loans worth $2.6 Billion

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