Doral Financial Corp. announced Monday it has entered into an agreement to sell $242.1 million in loans to FirstBank Puerto Rico through a transaction that closed May 30.
Doral had provided the loans sold as collateral to FirstBank as part of a credit agreement between the parties entered into on May 25, 2006, the bank told the Securities and Exchange Commission in a filing Monday afternoon.
For its part, FirstBank said it credited approximately $234.1 million to Doral’s outstanding balance and paid approximately $5,000 in cash to Doral.
“At this time, FirstBank is still in process of determining the accounting impact of the transaction including whether FirstBank may have a loss as a result of its determination of the fair values of the mortgage loans as compared to the net carrying amount of the secured borrowing,” FirstBank told the SEC in a separate filing.
Doral also notified the SEC that it had received a letter from the Federal Reserve Bank of New York saying the regulator had determined that the bank must classify the credit it was expecting to receive from the Treasury Department $229.9 million as a loss and write off the asset on the balance sheet.
However, in a statement released Monday, Doral said it disagreed with the FRBNY’s assessment and, therefore, was seeking to clarify the decision.
“The company is working to determine whether an impairment charge to the Puerto Rico tax receivables asset in the second fiscal quarter of 2014 is appropriate under generally accepted accounting principles and if so the amount of such impairment. Currently, the company is not able to reasonably estimate the amount of any such impairment,” the bank told the SEC.
Finally, Doral acknowledged that it is carefully monitoring Puerto Rico’s “deteriorating” economy, which could in turn affect the company’s financial conditions, result of operations and business prospects.
The deal with FirstBank is one of several unrelated transactions Doral believes it will have to take to restructure its business operations and capital structure, anticipating several more this year.
“The company is unable to determine the scope of the different transactions it will have to undertake as subsequent transactions will be dependent upon the success or failure of previous transactions as well as whether the [Doral Financial Corp.] and Doral Bank are successful in collecting the tax receivables due from the Government of Puerto Rico,” the bank said.
That said, Doral has hired several investment banking firms to assist it in structuring its businesses so it can “addresses in a comprehensive way the adverse effects on its business from the continued economic problems in Puerto Rico” while allowing it to capitalize on its success in building its U.S.-based business.
However, the bank stopped short of saying it will pull out of Puerto Rico as it considers selling performing and non-performing assets and businesses, improving its capital structure to be able to pursue new business opportunities and focusing its future growth in the U.S. market
“We have no intention of abandoning our commitment to the people of Puerto Rico, which spans more than 40 years. Doral continues exploring a number of options as we put together a revised capital plan,” said Lucienne Gigante, spokeswoman for Doral.