Doral Announces Major Recapitalization

Doral Financial Corp., a San Juan, Puerto Rico-based mortgage lender, has announced a recapitalization plan under which it will sell $610 million of its common stock to a newly formed bank holding company backed by Bear Stearns Merchant Banking and eight other companies.After the recapitalization, the new entity, Doral Holdings, will own approximately 90% of Doral's common stock outstanding, and Doral's existing common shareholders will own the remainder. The investment by Doral Holdings, together with certain other transactions, are expected to enable Doral to repay at maturity its $625 million floating-rate senior notes due July 20, to fund a previously announced settlement of a securities class action and shareholder derivative litigation, and to pay transaction expenses, the company said. The recapitalization "will permit Doral to continue as a well-capitalized major financial institution in Puerto Rico," said Doral chairman Dennis G. Buchert. "Although highly dilutive to existing common shareholders, the board believes it is the best, and probably the only, means to retain some value for existing shareholders and enable them to participate in the future of the company." After the announcement of the recapitalization plan, Fitch Ratings downgraded Doral Financial's long-term issuer default rating from B-plus to B and lowered several of the company's other ratings.