Doral Financial Corp Finds Buyer

Doral FinancialAs a savings and checking account customer of Doral Bank, the whole news about Doral and their very public meltdown has been unsettling. But now, Doral Financial Corp, once the largest mortgage lending company in Puerto Rico, said Thursday that it has agreed to be acquired by a group led by Bear Stearns Cos.' private equity arm, averting a possible bankruptcy. I'm not sure, is this good news?

The takeover may end more than two years of turmoil for Doral, which was caused by accounting and liquidity problems and a subsequent management overhaul. This uncertainty caused shares of Doral to fall more than 97 percent since January 2005, wiping out more than $5 billion of market value in the company.

The buyout group, led by Bear Stearns Merchant Banking, will acquire a 90 percent stake in Doral by purchasing $610 million of stock at 63 cents per share, 49 percent below Doral's Wednesday closing price. Existing shareholders, who must approve the transaction, would own the remaining 10 percent.

"The amount of dilution is eye-popping, but not surprising," said Joe Gladue, an analyst who until last month covered Doral for Cohen & Co. in Philadelphia. "This may be about the best they could do."

Doral intends to use proceeds from the stock offering and other financial operations to repay $625 million of floating-rate notes that mature on July 20. It said it will likely seek bankruptcy protection if it does not close with the buyout group by then. I don't know about any of Doral's other customers, but any discussion of your bank possibly going bankrupt is never good. Even though there might be insurance and all that jazz, the missus and I have decided to take a few precautions, just in case. Better safe than sorry.