The senior debt rating of Doral Financial Corp., San Juan, Puerto Rico, has been downgraded from Baa2 to Baa3 by Moody's Investors Service and remains on review for possible further downgrade.Moody's said the rating action reflects Doral's pending restatement of past financial reports to adjust for the value of its interest-only strips. "The company also plans to change its current business model by reducing loans sales that create IOs, thus lowering its profitability," the rating agency said. Doral has estimated an impairment charge of approximately $600 million on its IO strips, and it is determining how to allocate the charge among the affected periods from 2000 to 2004. The rating downgrade reflects "weak internal controls" at Doral, and Moody's also cited corporate governance issues. "Finally, a prolonged delay in the filing of its financial reports could result in liquidity pressures," Moody's said. "Thus, the ratings remain under review for possible further downgrade." Moody's can be found online at http://www.moodys.com.

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