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Doral Shares Down Sharply as Company Agrees to Bailout

Doral Financial , a struggling Puerto Rican lender, on Thursday said it agreed to be acquired by a group led by a Bear Stearns Cos. private equity affiliate to avert a possible insolvency.

The takeover may end more than two years of turmoil for San Juan-based Doral, once Puerto Rico's largest mortgage lender.

Its shares have fallen more than 97 percent since January 2005, wiping out more than $5 billion of market value, amid accounting and liquidity problems and a management overhaul.

Doral said it will sell the buyout group $610 million of stock at 63 cents per share, 49 percent below its Wednesday closing price, giving it a 90 percent stake.

Shareholders, who must approve the transaction, would own 10 percent. Doral shares peaked at $49.45 on Jan. 18, 2005.

"The board believes it is the best, and probably the only, means to retain some value for existing shareholders," Doral Chairman Dennis Buchert said in a statement.

Doral intends to use proceeds from the stock offering and other financings to repay $625 million of floating-rate notes that mature on July 20. It said it will likely seek bankruptcy protection if it can't close with the investor group in time.

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

Bear Stearns' private equity arm, Bear Stearns Merchant Banking, leads the buyout group. Other members are Canyon Capital Advisors, Eton Park Capital Management, General Electric Co.'s GE Asset Management, Goldman Sachs Group Inc., Marathon Asset Management, Perry Capital, D.E. Shaw Group and Tennenbaum Capital Partners, Doral said. Doral shares closed Wednesday at $1.24 on the New York Stock Exchange.

Long Slide

Doral's slide occurred as it restated results from 2000 to 2004 to fix how it accounted for some mortgage-related transactions. At least three other Puerto Rican lenders also undertook restatements related to mortgages.

Thursday's transaction requires regulatory and shareholder approvals, and court approval of an earlier $129 million settlement of securities lawsuits related to the restatement.

Glen Wakeman, Doral's chief executive, said the transaction "will position us to fully focus on our long-term strategic priority of profitably growing Doral."

Before being named chief executive last May, Wakeman had worked at GE for two decades, and had been chief of its Latin America consumer finance business.

"Wakeman has discussed making this more of a retail community bank," Gladue said. "I almost look at Doral now as a start-up."

In March, Doral agreed to sell its 11 New York City branches to Westbury, New York-based New York Community Bancorp Inc.

Bear Stearns & Co. and the law firms Cleary Gottlieb Steen & Hamilton LLP and Pietrantoni Mendez & Alvarez LLP advised Doral. Rothschild Inc. and the law firm Latham & Watkins LLP advised a committee of Doral's board. The law firms Simpson Thacher & Bartlett LLP and Kirkland & Ellis LLP advised the buyout group.