Doral Financial (DRL), under pressure to boost capital levels, has threatened to take legal action against Puerto Rico to obtain a $230 million refund from the territory.

Glen Wakeman, the $8.5 billion-asset company's president and chief executive, also requested a meeting with Melba Acosta Febo, Puerto Rico's Treasury Secretary, to discuss the situation. Doral also sent the May 9 letter to the territory's banking regulator and a regional director at the Federal Deposit Insurance Corp.

"Doral expects payments to be made immediately" under a 2012 agreement with the territory, Wakeman added. "Doral also intends to exercise all legal remedies available to it to enforce collection and protect the interests of Doral and its stakeholders, including shareholders, depositors and employees."

Doral is stepping up pressure on the Puerto Rican government just weeks after the FDIC told the San Juan company it could not count $289 million of receivables from the territory as Tier 1 capital under terms of a 2012 consent order. The receivables accounted for nearly 43% of its Tier 1 capital as of Dec. 31.

Doral has been developing a revised capital plan to address the FDIC's concerns. The company recently said it could sell certain assets — performing and nonperforming — and businesses to meet the FDIC's requirements.

Credit agencies have been weighing in on the latest developments, raising concerns that the company is becoming less creditworthy. Joseph Pucella, a vice president at Moody's Investors Service, wrote in a Friday note that the FDIC's ruling will force Doral to either increase capital within 120 days or submit a contingency plan to the FDIC to sell, merge or liquidate.

Moody's also downgraded a bond and a note issued by the Puerto Rico Conservation Trust Fund from Caa3 to C, the agency's lowest possible rating. Doral, which has more than $150 million in outstanding municipal debt issued through Puerto Rico public conduit entities, is the securities' obligor.

The ratings agency also downgraded senior secured bonds from Doral unit Doral Properties from Caa3 to C. The actions follow similar downgrades by Fitch Ratings and Standard & Poor's. Fitch last week dropped Doral's issuer default rating from CCC to C. S&P dropped Doral to CC.

A spokeswoman for Puerto Rico's Treasury Department said the agency will respond to Doral's letter in the next few days. She said the agency is unable to provide further comments on this matter because the Puerto Rico Taxpayers' Bill of Rights protects the confidentiality of this information. The FDIC declined to comment.

Puerto Rico has suffered from a lengthy economic malaise that has contributed to nearly 15% unemployment. Three of its banks — Westernbank, Eurobank and R-G Premier Bank of Puerto Rico — failed in April 2010. Spain's Banco Bilbao Vizcaya Argentaria exited the island last year by selling its operations there to OFG Bancorp (OFG) for $500 million.

Popular Inc. (BPOP) last month agreed to sell its operations in California, Illinois and central Florida to three different buyers. The company is the biggest remaining participant in the Troubled Asset Relief Program. First BanCorp (FBP), also based in Puerto Rico, is the second-largest Tarp bank remaining.

Doral still appears to have some supporters. An investor group that includes Bluestone Financial and Attiva Capital Partners, wrote in a recent regulatory filing that it believes Puerto Rico and, by extension, the company are poised for a comeback. Puerto Rico is "at a tipping point" and is "creating a lot of opportunities," the group wrote.

"In our view, Doral … remains undervalued and could benefit from an increase in foreign and U.S. mainland companies investing in Puerto Rico," the group, which owns about 5% of Doral's stock, added in its May 1 filing. Also, Doral, which has some mainland U.S. operations, "could benefit by playing a more important role in the fast-growing Hispanic community."

The investors also sought to motivate management by referencing an Alicia Keys song from the movie "The Amazing Spider-Man 2," declaring that "It's On Again" in Puerto Rico. The song, which features Kendrick Lamar, includes lyrics that inspire a fighting spirit, including the line "even through disaster, eye of the tiger for hope/I'm trying to find my way back."

It is unclear if the group filed its documents before or after news of Doral's woes with the FDIC, also disclosed on May 1, surfaced. Efforts to reach the investors were unsuccessful and Doral declined to comment on their filing.

Robert Slavin is a reporter for The Bond Buyer. Evan Nemeroff and Paul Davis contributed to this report.

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