A Puerto Rico court affirmed its decision in favor of the Puerto Rico bank Doral Financial Corp., in a setback for the Puerto Rico Treasury.
Doral claims that it over-paid taxes from 2002 to 2004 and the Treasury owed it a refund. Since the spring Doral has been trying to press its claim in Puerto Rico's legal system.
On October 10 the San Juan Superior Court ruled that Doral's claim for the $230 million was legitimate.
In the week of Oct. 31 Treasury asked the judge who had made that decision to reconsider. This week she declared she would not reconsider the decision.
The Treasury has promised to now appeal the judge's decision to a higher court.
"The Puerto Rico Department of the Treasury has vigorously defended the interests of the people of Puerto Rico in Doral's claim against the government and we will continue to do so as we appeal the decision in the Puerto Rican Appellate Court," Karolee García Figueroa, Treasury Department Interim Secretary, told The Bond Buyer.
Standard & Poor's and Moody's Investors Service have indicated they believe the Federal Deposit Insurance Company will liquidate Doral in the near future.
Doral has over $150 million in outstanding municipal debt, issued through Puerto Rico conduit agencies.
Some bond market participants have been concerned that a loss by Puerto Rico in the Doral case would be a financial problem for the commonwealth.
Ratings agencies say that the commonwealth government proper has between about $40 billion and $58 billion in net tax supported debt outstanding. The commonwealth's general obligation debt is rated B2 by Moody's Investor's Service, BB by Standard & Poor's, and BB-minus by Fitch Ratings.
In late October S&P released a statement saying that they did not anticipate the Doral case affecting its rating of the commonwealth's GO debt.
"If Puerto Rico loses the case after all appeals are exhausted, we believe the size of the award -- a $45 million per year payout over five years -- would remain relatively small compared with its $9.6 billion current fiscal 2015 budget," S&P analysts David Hitchcock, Horacio Aldrete-Sanchez, and Gabriel Petek wrote.
The analysts also noted that Puerto Rico passed a law this year that may limit payment of the court judgment to $3 million a year.
