Puerto Rico-Based Doral Financial Expected to Default on Over $150M in Muni Bonds

Moody’s Investors Service (MCO) and other credit rating agencies are saying that there is a good chance that Doral Financial Corp. (DRL), which is based in Puerto Rico, will default on over $150M muni notes and bonds. Moody’s has downgraded both a note and a bond that was issued by the Puerto Rico Conservation Trust Fund, in which Doral Financial Corp. is the obligor, from Caa3 to C. This is the lowest rating the agency can give before an investment defaults. This prediction comes after regulators determined that receivables from Puerto Rico’s government couldn’t be included in Doral Financial’s Tier 1 capital.

The receivables were $289M out of Doral’s $679M of Tier 1 capital. The regulators’ decision will compel the bank to up its capital or turn in a contingency plan to liquidate, merge, or sell. The plan has to be submitted to the Federal Deposit Insurance Company (“FDIC”).

Moody’s also downgraded senior secured bonds from Doral Properties, a Doral Financial subsidiary, from Caa3 to C, while Fitch Ratings lowered Doral Financial’s issuer default rating from CCC to C (the credit agency’s second lowest possible rating). Standard & Poor downgraded the bank to CC, which is its third lowest rating.

Doral Financial is Doral Bank’s parent company. In 2012, Doral Bank completed a consent order with the FDIC. After the US government said earlier this month that tax receivables that came from the government of Puerto Rico could not be regarded as Tier 1 capital to satisfy the consent agreement, the company said that in its 8-K statement that it would need to look for financial support from debt and equity holders and other sources right away. According to Moody’s, this is a sign that default and serious losses for creditors for Doral Financial are likely.

Puerto Rico Municipal Bond Fraud
Please contact our Puerto Rico municipal bond fraud lawyers today. We represent investors in Puerto Rico and the US. Unfortunately, in the last year, many investors have sustained losses in Puerto Rico bonds or bond funds with Puerto Rican bonds, as well as investments related to Puerto Rican banks. Shepherd Smith Edwards and Kantas, LTD LLP would like to talk to you.

 

 

Puerto Rico Bank Near Default on Muni Bonds: Agencies, The Bond Buyer, May 9, 2014

Fitch Downgrades Doral Financial Corp.’s IDR to ‘C’, Businesswire.com, May 5, 2014

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FINRA Sees 10% Rise in Arbitration Cases, Puerto Rico Bond Claims A Factor, Stockbroker Fraud Blog, April 27, 2014

Large Hedge Funds Invested in Puerto Rico Bonds, Stockbroker Fraud Blog, April 11, 2014

Citigroup Must Contend With $1B New York CDO Lawsuit, Says Appeals Court, Institutional Investor Securities Blog, May 9, 2014