Moody's keeps Doral on review

Moody's Investors Service said it is continuing its review of Doral Financial Corp. for possible downgrade following the company's announcement that it reached a definitive agreement with Bear Stearns Merchant Banking and a number of other investors to invest $610 million in exchange for 90% of Doral's common equity.

The ratings have been on review for possible downgrade since Jan. 5, when Doral's senior debt rating was downgraded to B2 from B1. The review has centered on Doral's prospects for refinancing $625 million of debt maturing on July 20.

Following completion of the investment transaction, existing shareholders will own 10% of the company, and the proceeds from the capital raise, combined with other financial resources, should allow Doral to repay the $625 million of debt due in July, Moody's said.

The agreement with the investor group will require regulatory and shareholder approval, and the transaction will have to be funded prior to the date of the debt maturity. That time frame remains tight, in Moody's view, but the agency said the ratings will be confirmed if the transaction closes on time and the debt is paid in full.

On the other hand, if Doral fails to obtain the necessary approvals required for the transaction to close, it will likely file for bankruptcy and Moody's said a downgrade is likely.

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