Reprinted from Caribbean Net News
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Chairman of Puerto Rico lender resigns over financial plan

Thursday, January 4, 2007

by: Elizabeth Hester

NEW YORK, USA (Bloomberg): Doral Financial Corp., Puerto Rico's largest mortgage lender, said John Ward has resigned as chairman of the board in a dispute over how to raise capital and "address the continued viability of the company."

Ward also objected to language the San Juan-based lender used in its third-quarter earnings release on December 29 that said the financial restructuring process could hurt the value of the company's stock, according to a statement by Doral on Wednesday. Dennis Buchert, an independent director appointed in October, will succeed Ward, the company said.

Doral, which lost $62.5 million in the first nine months of 2006, last week said it will need to obtain "significant outside financing" to pay off $625 million of debt that matures in July.

Failure to refinance may result in "bankruptcy where the current equity is likely to be worthless," UBS AG analyst Omotayo Okusanya wrote in a research note Tuesday.

"Mr Ward's decision to resign reflects the fact that he holds different views as to the best process to be followed by the company to meet its capital and liquidity needs and maximise shareholder value," Doral said in its statement.

In an e-mail sent to the board December 29 and included in a regulatory filing, Ward wrote that he was resigning after "becoming increasingly concerned about the process of governing this company." He said that Doral didn't contact him before issuing the third-quarter statement even though he had "significant concerns" about the wording. Ward didn't return two phone calls seeking a comment.

Lucienne Gigante, spokeswoman at Doral, declined to comment beyond the company's statement and regulatory filing.

In releasing its third-quarter results, Doral said it may issue more equity and high-yield securities to pay off the $625 million of senior notes. During the period, Doral lost $28.7 million after a slowdown in the mortgage market and a narrowing in the difference between what it pays to borrow money and what it makes on loans.

"Management acknowledges that the recapitalisation plan could result in significant dilution to shareholders," wrote UBS's Okusanya. "We see no compelling reason to own the stock ahead of the debt refinancing."

The company considered Ward's objections and decided the previously approved plan to refinance was "properly designed," Doral said in the statement. The company said it remains confident in current management led by Chief Executive Officer Glen Wakeman.

Bear Stearns Cos. and JPMorgan Chase & Co. are advising the company, Doral said. Russell Sherman, spokesman at Bear Stearns, and Brian Marchiony, a JPMorgan spokesman, declined to comment.

Ward also wrote in his e-mail that he is "very concerned" that Doral's investment bankers will not "aggressively pursue a strategic buyer given their substantial commitment of time and effort to the private equity transaction." Doral "may be having problems raising capital in the public market and is now pursuing funding from private equity," Okusanya wrote in a note today. Private-equity investors may "implement an aggressive turnaround plan," he said.

Depending on the amount of an offer, shareholders may "be better served by the sale of the company rather than private-equity coming in," Joseph Gladue, an analyst at Philadelphia-based Cohen & Co., said in an interview today. He recommends selling the shares.

Private equity funds use a combination of equity and debt to buy companies in hopes of improving their financial performance and then selling them at a profit.

Buchert, 60, is the founder and chief executive officer of Plainsboro, New Jersey-based Whitehall Associates Inc., according to a biography provided by Doral. The company advises financial firms that have problems with regulatory compliance and corporate governance.

Doral was fined $25 million in September by the US Securities and Exchange Commission for overstating pretax profit by 100 percent, or $921 million between 2000 and 2004.

Buchert also consults on private-equity and non-traditional investments. He was chief executive officer of Credit Agricole Indosuez (US) from 2003 to 2004.

Ward became chairman in 2005 and served as interim CEO prior to Wakeman's appointment last year, the company said.

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