The Puerto Rico Treasury Department and under-capitalized Doral Financial Corp. have entered into court-supervised negotiations over Doral's claim for $229 million.
Doral announced the negotiations in an 8-K statement made to the United States Securities and Exchange Commission. The negotiations started on Aug. 8.
In the statement Doral said the two sides have a "proposed framework for settlement" but that the final settlement is still being negotiated and remains subject to approval by a Puerto Rico Court of the First Instance.
The Federal Deposit Insurance Corp. has pressured Doral to add hundreds of millions of dollars of Tier 1 capital in the next few weeks.
The three major ratings agencies have indicated they believe the FDIC will liquidate Doral in the near future.
Doral has over $150 million in outstanding municipal debt, issued through Puerto Rico conduit agencies.
Doral claims that it had over-paid taxes from 2002 to 2004 and was entitled to a refund.
Doral's case was going to be heard in a pre-trial hearing on Aug. 11. Then Doral and the Treasury entered the negotiation process. The court has given the two sides 10 business days from Aug. 8 to finalize the terms of a settlement agreement.
Some bond analysts have said a loss by Puerto Rico in the Doral case would be a financial problem for the commonwealth. Ratings agencies say that the commonwealth has between about $40 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.
