<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration Nos. 333-83877
333-83877-01
OFFICIAL STATEMENT AND PROSPECTUS
$44,765,000
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY (AFICA)
INDUSTRIAL REVENUE BONDS, 1999 SERIES A
(DORAL FINANCIAL CENTER PROJECT)
The bonds have the following characteristics:
- AFICA will issue the bonds and lend the proceeds to Doral Properties,
Inc., a wholly-owned subsidiary of
(Doral Financial Corporation Logo)
- The bonds do not constitute a debt of the Government of Puerto Rico.
AFICA is required to pay the bonds solely out of loan repayments by
Doral Properties or Doral Financial.
- Doral Financial is unconditionally guaranteeing the loan repayments by
Doral Properties, which include all payments on the bonds.
- Interest on the bonds will accrue from their date of issuance and will
be payable monthly on the first day of each month, commencing on
December 1, 1999.
- The bonds are subject to mandatory and optional redemption as
described in this official statement and prospectus.
- The bonds are secured by a mortgage on the office building and related
facilities being financed with the bonds.
Under most circumstances, interest on the bonds will be exempt from Puerto
Rico and United States taxes to residents of Puerto Rico. See "Taxation"
beginning on page 32 of this official statement and prospectus.
Neither Doral Properties nor AFICA intend to apply for listing of the bonds
on a securities exchange. There will likely be no secondary public market for
the bonds.
INVESTING IN THESE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 5 OF THIS OFFICIAL STATEMENT AND PROSPECTUS.
<TABLE>
<CAPTION>
Proceeds,
Public Offering Underwriting before expenses,
Price Discount to Doral Properties
--------------- ------------ -------------------
<S> <C> <C> <C>
Per bond*.............................. 98.75%-100% 2.07% 96.68%-97.93%
Total.................................. $44,627,500 $926,635.50 $43,700,864.50
</TABLE>
- ---------------
* The offering prices of the bonds together with their maturities and interest
rates are shown on the inside cover page hereof.
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED
BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
POPULAR SECURITIES PAINEWEBBER INCORPORATED OF PUERTO RICO
DORAL SECURITIES MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY INC.
OCTOBER 28, 1999
<PAGE> 2
$44,765,000
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY
INDUSTRIAL REVENUE BONDS, 1999 SERIES A
(DORAL FINANCIAL CENTER PROJECT)
$5,345,000 SERIAL BONDS
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE PRICE
- ----------- ---------- ---------------- -----
<S> <C> <C> <C>
$310,000 6.10% June 1, 2003 100%
320,000 6.10 December 1, 2003 100
330,000 6.15 June 1, 2004 100
340,000 6.15 December 1, 2004 100
350,000 6.20 June 1, 2005 100
360,000 6.20 December 1, 2005 100
375,000 6.25 June 1, 2006 100
385,000 6.25 December 1, 2006 100
395,000 6.30 June 1, 2007 100
410,000 6.30 December 1, 2007 100
420,000 6.35 June 1, 2008 100
435,000 6.35 December 1, 2008 100
450,000 6.40 June 1, 2009 100
465,000 6.40 December 1, 2009 100
</TABLE>
$5,585,000 6.75% Term Bonds due December 1, 2014 -- Price -- 100%
$22,835,000 6.90% Term Bonds due June 1, 2026 -- Price -- 100%
$11,000,000 6.90% Term Bonds due December 1, 2029 -- Price -- 98.75%
<PAGE> 3
(Doral Financial Corporation Logo)
<PAGE> 4
SUMMARY
This summary highlights information contained elsewhere in this official
statement and prospectus. You should read the entire official statement and
prospectus, including the information incorporated by reference into this
official statement and prospectus, and the "Risk Factors" section beginning on
page 5.
DORAL PROPERTIES AND DORAL FINANCIAL
Doral Properties is a wholly-owned subsidiary of Doral Financial. Doral
Properties was organized to own, develop and operate the Doral Financial Center,
which will be the new headquarters of Doral Financial.
Doral Financial is the leading mortgage banking institution in Puerto Rico
based on the volume of origination of first mortgage loans secured by single
family residences and the size of its mortgage servicing portfolio. Doral
Financial's loan production amounted to $2.3 billion and $1.5 billion for the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively. Doral Financial had a mortgage servicing portfolio of $7.0 billion
as of June 30, 1999.
Doral Financial is also engaged in the commercial banking and securities
business. As of June 30, 1999, Doral Financial had total banking assets of $1.2
billion and deposits of $760.1 million.
Doral Financial is a bank holding company subject to regulation and
supervision by the Federal Reserve Board. Unlike many bank holding companies,
Doral Financial has significant operations at the holding company level. As of
June 30, 1999, Doral Financial had assets of $1.7 billion at the holding company
level.
Doral Financial's principal executive offices are located at 1159 Franklin
D. Roosevelt Avenue, San Juan, Puerto Rico, and its telephone number is (787)
749-7100.
THE OFFERING
Issuer..................... AFICA, a Puerto Rico government instrumentality.
Bonds are limited
obligations of AFICA....... AFICA is required to pay the bonds solely out of
payments of principal and interest made by Doral
Properties or Doral Financial to AFICA under a loan
and guaranty agreement. AFICA acts as a
pass-through entity so that under most
circumstances, interest on the bonds will be tax
free to Puerto Rico residents. The bonds do not
constitute an indebtedness of the Government of
Puerto Rico or of any of its political
subdivisions.
Use of proceeds............ AFICA will lend the bond proceeds to Doral
Properties, a wholly-owned subsidiary of Doral
Financial. Doral Properties will use the loan
proceeds to finance in part the construction and
equipping of Doral Financial's new headquarters
building and related facilities, to be known as the
Doral Financial Center (the "Center").
Guarantor.................. Doral Financial is unconditionally guaranteeing the
payments by Doral Properties under the loan and
guaranty agreement.
Mortgage on Center......... Payment of the bonds will be secured by a mortgage
on the Center.
Interest on the bonds...... Interest on the bonds will be paid to you monthly
on the first day of each month, commencing on
December 1, 1999. Additionally, interest will be
paid to you at maturity or redemption. Interest
will be computed using a 360-day year of twelve
30-day months. Interest will accrue from the date
of issuance of the bonds.
1
<PAGE> 5
Book-entry system.......... The bonds will be registered in the name of The
Depository Trust Company's (DTC) nominee under
DTC's book-entry only system. This means that you
will not receive a certificate for any bonds you
purchase.
Mandatory redemption of
bonds...................... A portion of the term bonds will be periodically
redeemed as part of the amortization requirements
of the bonds. For a schedule of term bond
amortizations, see "The Bonds -- Mandatory
Redemption." All of the bonds will be redeemed if
(1) Doral Properties fails to comply with certain
tax covenants and as a result the interest on the
bonds becomes subject to federal taxation for
Puerto Rico residents or (2) if the Center is not
operated in accordance with AFICA's enabling law.
In addition, a portion of the bonds may be redeemed
from unused bond proceeds, if any.
Some or all of the bonds may be required to be
redeemed if all or part of the Center is
expropriated or damaged.
Optional redemption of
bonds...................... Doral Properties has the right to redeem all or a
portion of the bonds on and after December 1, 2009
at the following prices, expressed as a percentage
of the outstanding principal of the bonds, plus
interest to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION PERIOD PRICE
----------------- -----
<S> <C>
December 1, 2009 to November 30, 2010.................. 102%
December 1, 2010 to November 30, 2011.................. 101%
December 1, 2011 and thereafter........................ 100%
</TABLE>
Also, Doral Properties has the right to redeem some
or all of the bonds, without premium, if the Center
is damaged or expropriated by the government or if,
as a result of changes in law, Doral Properties'
operation of the Center or its obligations under
the loan and guaranty agreement are adversely
impacted.
Trustee.................... The bonds will be issued pursuant to a trust
agreement between AFICA and Citibank, N.A., as
trustee.
Ratings.................... Moody's: Baa3
Standard & Poor's: BBB-
Duff & Phelps: BBB
TAX CONSEQUENCES
Provided Doral Properties complies with the source of income covenants in
the loan and guaranty agreement, it is the opinion of Fiddler Gonzalez &
Rodriguez, LLP, bond counsel, that the bonds and the interest on the bonds are
exempt from or not subject to:
(1) Puerto Rico income taxes and municipal property and license taxes,
(2) under certain circumstances, Puerto Rico gift and estate taxes, and
(3) United States income tax when received by:
(a) individuals who are bona fide residents of Puerto Rico during the
entire taxable year in which such interest is received, or
(b) foreign corporations, including Puerto Rico corporations, and the
interest is not effectively connected with the conduct of a trade
or business in the United States by the corporation, the
corporation is not a foreign personal holding company, a
controlled foreign corporation or a passive foreign investment
company under the U.S. internal revenue code, and the corporation
is not treated as a domestic corporation for the purposes of the
U.S. internal revenue code.
2
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
You should read the summary financial information presented below together
with Doral Financial's consolidated financial statements and notes which are
incorporated by reference into this official statement and prospectus and with
the historical financial information of Doral Financial included under "Selected
Financial Data" beginning on page 11 of this official statement and prospectus.
Net income for 1994 includes the cumulative effect of a change in the
method of accounting for unrealized gains and losses on trading securities. When
Doral Financial adopted this new accounting pronouncement referred to as SFAS
115 in 1994, it classified approximately $132 million of mortgage-backed
securities as trading securities and recognized a net unrealized gain of $1.2
million.
Net income for the year ended December 31, 1997 reflects a non-cash
extraordinary charge to earnings of $12.3 million. The charge resulted from the
issuance by Doral Financial to Popular, Inc., a bank holding company
headquartered in San Juan, Puerto Rico, of shares of convertible preferred stock
in exchange for the cancellation of $8.5 million of Doral Financial's
subordinated convertible debentures owned by Popular, Inc. The charge was equal
to the excess of the fair value of the preferred stock on the date of the
exchange over the net carrying amount of the debentures on Doral Financial's
financial statements. For the year ended December 31, 1997, the return on
average assets ratio computed on income before this extraordinary item would
have been 2.19% and the return on average common equity ratio would have been
19.29%.
The return on average assets ratio is computed by dividing net income by
average total assets for the period. The return on average common equity ratio
is computed by dividing net income by average common stockholders' equity for
the period. Both ratios have been computed using month end averages. These
ratios for the six month periods ended June 30, 1999 and 1998 have been
presented on an annualized basis.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net income.............. $ 32,939 $ 24,101 $ 52,832 $ 20,231 $ 27,041 $ 19,560 $ 17,430
Cash dividends paid..... $ 7,844 $ 4,786 $ 9,975 $ 7,199 $ 6,008 $ 4,374 $ 3,943
BALANCE SHEET DATA:
Total assets............ $3,279,870 $2,497,356 $2,918,113 $1,857,789 $1,106,083 $ 917,922 $ 768,019
Stockholders' equity.... $ 360,562 $ 246,233 $ 269,559 $ 186,955 $ 150,531 $ 129,017 $ 90,496
OPERATING DATA:
Mortgage loans
originated and
purchased............. $1,453,000 $ 931,000 $2,313,000 $1,037,000 $ 817,000 $ 636,000 $ 824,000
Loan servicing
portfolio............. $7,012,000 $5,140,000 $6,186,000 $4,655,000 $3,068,000 $2,668,000 $2,644,000
SELECTED RATIOS:
Return on average
assets................ 2.14% 2.21% 2.17% 1.37% 2.68% 2.32% 2.78%
Return on average common
equity................ 22.10% 22.25% 21.65% 11.99% 19.35% 17.82% 20.82%
</TABLE>
3
<PAGE> 7
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is a measure of Doral Financial's
ability to generate sufficient earnings to pay the fixed charges or expenses of
its debt. The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For purposes of computing the ratio, earnings consist
of pretax income from continuing operations plus fixed charges and amortization
of capitalized interest, less interest capitalized. Fixed charges consist of
interest expensed and capitalized, amortization of debt issuance costs, and
Doral Financial's estimate of the interest component of rental expense. The
ratio is presented both including and excluding interest on deposits.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Including Interest on Deposits................ 1.57x 1.51x 1.61x 1.66x 1.50x 1.78x
Excluding Interest on Deposits................ 1.73x 1.61x 1.72x 1.75x 1.54x 1.82x
</TABLE>
4
<PAGE> 8
RISK FACTORS
You should carefully consider the following factors and other information
in this official statement and prospectus, including the information
incorporated by reference in this official statement and prospectus, before
deciding to invest in the bonds.
HOLDING COMPANY STRUCTURE MAY RESULT IN ADVANTAGE TO CREDITORS OF DORAL
FINANCIAL'S SUBSIDIARIES OVER BONDHOLDERS AND OTHER CREDITORS OF DORAL FINANCIAL
Although Doral Financial has operations and assets at the parent company
level, a significant portion of its assets is in its subsidiaries. The claims of
creditors and preferred stockholders of Doral Financial's subsidiaries will have
a priority over Doral Financial's equity rights in such subsidiaries and the
rights of Doral Financial's creditors. This means that if any of Doral
Financial's subsidiaries were liquidated, the creditors of the subsidiary would
have the right to get paid before any of the creditors of Doral Financial,
including bondholders.
ABSENCE OF SECONDARY MARKET FOR THE BONDS
There is currently no secondary market for the bonds, and there can be no
assurance that a secondary market will be developed, or if it does develop, that
it will provide bondholders with liquidity for their investment or that it will
continue for the life of the bonds.
DORAL FINANCIAL IS NOT RESTRICTED FROM INCURRING ADDITIONAL BORROWINGS OR TAKING
OTHER ACTIONS THAT COULD IMPAIR ITS ABILITY TO PAY THE BONDS
The loan and guaranty agreement between AFICA, Doral Properties and Doral
Financial does not restrict Doral Financial from borrowing additional money,
making capital expenditures, making acquisitions, transferring or creating liens
over its assets, paying dividends or engaging in transactions with affiliates,
among others. Doral Financial could take any of these actions in a way that
could affect its ability to repay the bonds or result in a downgrade of the
rating of the bonds.
REDEMPTION MAY ADVERSELY AFFECT YOUR RETURN ON THE BONDS
Doral Financial may choose to, in the case of optional redemption, or must,
in the case of mandatory redemption, redeem some or all of the bonds at times
when prevailing interest rates may be relatively low. If this happens, you
generally will not be able to reinvest the redemption proceeds in a comparable
security at an effective interest rate as high as that of the bonds.
DORAL FINANCIAL'S CREDIT RATINGS MAY NOT REFLECT ALL RISKS OF AN INVESTMENT IN
THE BONDS
Doral Financial's credit ratings are an assessment of its ability to pay
its obligations. Consequently, real or anticipated changes in Doral Financial's
credit ratings will generally affect the market value of your bonds. Doral
Financial's credit ratings, however, may not reflect the potential impact of all
risks related to market or other factors discussed above on the value of your
bonds.
FLUCTUATIONS IN INTEREST RATES MAY HURT DORAL FINANCIAL'S BUSINESS
Interest rate fluctuations are the primary market risk affecting Doral
Financial. Changes in interest rates affect the following areas of its business:
- the number of mortgage loans originated and purchased;
- the interest income earned on loans and securities;
- gain on sale of loans;
- the value of securities holdings; and
- the value of its servicing asset.
5
<PAGE> 9
Increases in Interest Rates Reduce Demand for Mortgage Loans. Higher
interest rates increase the cost of mortgage loans to consumers and reduce
demand for mortgage loans, which hurts Doral Financial's profits. Reduced demand
for mortgage loans results in reduced loan originations by Doral Financial and
lower mortgage origination income. Demand for refinance loans is particularly
sensitive to increases in interest rates. Doral Financial has for many years
relied on refinance loans for a significant portion of its mortgage loan
production. For the six months ended June 30, 1999, refinance loans represented
approximately 58% of Doral Financial's total dollar volume of loans originated
(excluding loans purchased from third parties).
Increases in Interest Rates Reduce Net Interest Income. Increases in
short-term interest rates reduce net interest income, which is an important part
of Doral Financial's earnings. Net interest income is the difference between the
interest received by Doral Financial on its assets and the interest paid on its
borrowings. Most of Doral Financial's assets, like its mortgage loans and
mortgage-backed securities, are long-term assets with fixed interest rates. In
contrast, most of Doral Financial's borrowings are short-term. When interest
rates rise, Doral Financial must pay more in interest while interest earned on
its assets does not rise as quickly. This causes profits to decrease.
Increases in Interest Rates May Reduce or Eliminate Gain on Sale of
Mortgage Loans. If long-term interest rates increase between the time Doral
Financial commits to or establishes an interest rate on a mortgage loan and the
time it sells the loan, Doral Financial may realize a reduced gain or a loss on
such sale.
Increases in Interest Rates May Reduce the Value of Mortgage Loans and
Securities' Holdings. Increases in interest rates may reduce the value of Doral
Financial's financial assets and have an adverse impact on its earnings and
financial condition. Doral Financial owns a substantial portfolio of mortgage
loans, mortgage-backed securities and other debt securities with fixed interest
rates. The market value of an obligation with a fixed interest rate generally
decreases when prevailing interest rates rise.
Decreases in Interest Rates May Adversely Affect Value of Servicing
Asset. Decreases in interest rates lead to increases in the prepayment of
mortgages by borrowers, which may reduce the value of Doral Financial's
servicing asset. The servicing asset is the estimated present value of the fees
Doral Financial expects to receive on the mortgages it services over their
expected term. Doral Financial assigns this value based on what other persons
have paid for similar servicing rights in recent transactions. If prepayments
increase above expected levels, the value of the servicing asset decreases
because the amount of future fees expected to be received by Doral Financial
decreases. Doral Financial may be required to recognize this decrease in value
by taking a charge against its earnings, which causes its profits to decrease.
DORAL FINANCIAL MAY SUFFER LOSSES FROM MORTGAGE LOANS IT SELLS BUT AS TO WHICH
IT RETAINS THE CREDIT RISK
Doral Financial often retains all or part of the credit risk on sales of
mortgage loans that do not qualify for the guarantee programs of GNMA, FNMA or
FHLMC and may suffer losses on these loans. Doral Financial suffers losses on
these arrangements when foreclosure sale proceeds of the property underlying a
defaulted mortgage loan are less than the outstanding principal balance of these
loans and the cost of holding and disposing of the related property. As of June
30, 1999, Doral Financial's maximum obligation on mortgage loans it had sold but
retained all or part of the credit risk was $640.7 million.
INCREASE IN DORAL FINANCIAL'S ORIGINATIONS OF COMMERCIAL LOANS HAS INCREASED ITS
CREDIT RISKS
Doral Financial's recent increase in originations of mortgage loans secured
by income producing residential buildings and commercial properties has
increased its credit risks. These loans involve greater credit risks than
residential mortgage loans because they are larger in size and more risk is
concentrated in a single borrower. The properties securing these loans are also
harder to dispose of in foreclosure. For the six month period ended June 30,
1999, Doral Financial originated approximately $109.6 million in mortgage loans
secured by income producing residential buildings and commercial properties.
6
<PAGE> 10
DORAL FINANCIAL IS EXPOSED TO GREATER RISK BECAUSE ITS BUSINESS IS CONCENTRATED
IN PUERTO RICO
Because most of Doral Financial's mortgage loans are secured by properties
located in Puerto Rico, Doral Financial is exposed to a greater risk of
delinquency or default on these mortgage loans resulting from adverse economic,
political or business developments and natural hazard risks that affect Puerto
Rico, including hurricanes and earthquakes. If Puerto Rico's real estate market
experiences an overall decline in property values, the rates of delinquency,
foreclosure, bankruptcy and loss on the mortgage loans would probably increase
substantially. This would cause Doral Financial's profitability to decrease.
DORAL FINANCIAL'S BUSINESS WOULD BE DISRUPTED IF ITS COMPUTER SYSTEMS CANNOT
WORK PROPERLY WITH YEAR 2000 DATA
Doral Financial could experience a significant disruption to its business
operations that could have an adverse effect on its profitability if its
computer systems and the computer systems provided by third party vendors on
which it relies are not able to properly perform data calculations in the year
2000. Doral Financial has taken steps that it believes are adequate to make sure
this does not happen. However, Doral Financial cannot assure you that these
efforts will be completely successful. Problems suffered by providers of basic
services, such as telephone, water, sewer and electricity could also have an
adverse impact on Doral Financial's daily operations. Doral Financial has
revised its existing business interruption contingency plans to address any
interruptions of these basic services.
ENFORCEMENT OF REMEDIES UNDER MORTGAGE
If Doral Financial or Doral Properties fail to comply with their
obligations under the loan and guaranty agreement, the trustee may proceed to
enforce any remedies under the trust agreement, the loan and guaranty agreement
and the mortgage. The enforcement of such remedies may be limited or restricted
by laws relating to bankruptcy and rights of creditors generally and by
application of general principles of equity applicable to the availability of
certain remedies and may be substantially delayed and subject to judicial
discretion in the event of litigation or statutory remedy procedures.
Any foreclosure and other proceedings are dependent, in many respects, upon
judicial action which is subject to discretion or delay. Under existing law and
judicial decisions, including specifically the United States Bankruptcy Code,
the remedies specified by the mortgage may not be readily available or may be
limited. In addition, no assurances can be given that the proceeds of any such
sale of the Center would be sufficient to pay the principal of, premium, if any,
and interest on the bonds at such time due.
FORWARD-LOOKING STATEMENTS
This official statement and prospectus, including information incorporated
in this official statement and prospectus by reference, contains certain
"forward-looking statements" concerning Doral Financial's operations,
performance and financial condition, including its future economic performance,
plans and objectives and the likelihood of success in developing and expanding
its business. These statements are based upon a number of assumptions and
estimates which are subject to significant uncertainties, many of which are
beyond the control of Doral Financial. The words "may," "would," "could,"
"will," "expect," "anticipate," "believe," "intend," "plan," "estimate" and
similar expressions are meant to identify these forward-looking statements.
Actual results may differ materially from those expressed or implied by these
forward-looking statements.
RECENT DEVELOPMENTS
On October 7, 1999, Doral Financial released its unaudited earnings for the
quarter and nine months ended September 30, 1999. Doral Financial reported net
income of $17.3 million or $0.38 per diluted share for the third quarter of
1999, compared to net income of $13.9 million or $0.33 per diluted share for the
third quarter of 1998.
7
<PAGE> 11
For the nine months ended September 30, 1999, Doral Financial reported net
income of $50.2 million or $1.11 per diluted share, compared to net income of
$38.0 million or $0.91 per diluted share for the first nine months of 1998.
Doral Financial's mortgage loan origination and purchases were $601 million
for the quarter ended September 30, 1999 and $2.1 billion for the nine months
ended September 30, 1999, compared to $567 million for the quarter ended
September 30, 1998 and $1.5 billion for the nine months ended September 30,
1998. Doral Financial's servicing portfolio totaled $7.3 billion as of September
30, 1999.
DORAL PROPERTIES
Doral Properties is a wholly-owned subsidiary of Doral Financial organized
on July 21, 1999, under the laws of the Commonwealth of Puerto Rico. It has not
had any operations prior to the date of this offering except for the purchase of
the two existing buildings constituting a part of the Center which it purchased
on October 22, 1999. Such buildings will be leased to third parties through June
30, 2000 under leases that existed at the time of purchase. Doral Properties was
organized for the purpose of owning, developing and operating the Doral
Financial Center.
DORAL FINANCIAL
Doral Financial Corporation is a bank holding company organized under the
laws of the Commonwealth of Puerto Rico. Its main lines of business are
described below.
- Mortgage banking -- Doral Financial is the leading mortgage banking
institution in Puerto Rico based on the volume of origination of first
mortgage loans secured by single family residences and the size of its
mortgage servicing portfolio. Doral Financial conducts this business in
Puerto Rico primarily through a division of Doral Financial, HF Mortgage
Bankers, and its subsidiaries, Doral Mortgage Corporation, Centro
Hipotecario, Inc. and Sana Investment Mortgage Bankers, Inc. Doral
Financial also conducts mortgage banking activities in the mainland
United States through Doral Mortgage and Doral Money, Inc.
- Commercial Banking -- Doral Financial conducts this business in Puerto
Rico through its subsidiary, Doral Bank. Doral Financial is in the
process of opening a new federal savings bank subsidiary in the New York
City metropolitan area under the name Doral Bank, FSB which commenced
operations on October 4, 1999.
- Securities services -- Doral Financial conducts this business in Puerto
Rico through its broker-dealer subsidiary, Doral Securities, Inc.
Because Doral Financial is a holding company, the claims of creditors and
any preferred stockholders of Doral Financial's subsidiaries will have a
priority over Doral Financial's equity rights and the rights of Doral
Financial's creditors, including the holders of the bonds, and preferred
stockholders to participate in the assets of the subsidiary upon the
subsidiary's liquidation.
Doral Financial's subsidiaries that operate in the banking and securities
business can only pay dividends if they are in compliance with the applicable
regulatory requirements of federal and state bank regulatory authorities and
securities regulators. Doral Financial must also maintain the required capital
levels of a bank holding company before it may pay dividends on its stock.
There are various statutory and regulatory limitations on the extent to
which Doral Bank or any other banking subsidiary (including a federal savings
association) can finance or otherwise transfer funds to Doral Financial or its
nonbanking subsidiaries, either in the form of loans, extensions of credit,
investments or asset purchases.
- Such transfers by Doral Bank or any other banking subsidiary to Doral
Financial or any nonbanking subsidiary are limited to 10% of the banking
subsidiary's capital and surplus, and with respect to Doral Financial and
all such nonbanking subsidiaries, to an aggregate of 20% of the banking
subsidiary's capital and surplus.
8
<PAGE> 12
- Furthermore, loans and extensions of credit are required to be secured in
specified amounts and are required to be on terms and conditions
consistent with safe and sound banking practices.
In addition, there are regulatory limitations on the payment of dividends
directly or indirectly to Doral Financial by its subsidiaries. Federal and
Puerto Rico authorities also have the right to further limit Doral Bank's
payment of dividends.
Under the policy of the Board of Governors of the Federal Reserve System, a
bank holding company is required to act as a source of strength to its
subsidiary banks and to commit resources to support such banks. As a result of
that policy, Doral Financial may be required to commit resources to Doral Bank,
Doral Bank, FSB or any other banking subsidiary created in the future in
circumstances in which it might not do so absent such policy. Further, federal
bankruptcy law provides that in the event of the bankruptcy of Doral Financial,
any commitment by Doral Financial to regulators to maintain the capital of a
banking subsidiary will be assumed by the bankruptcy trustee and entitled to
priority of payment. Doral Financial has committed with the FDIC to maintain
Doral Bank FSB's ratio of tier 1 capital to total assets at a level of not less
than 8% throughout its first three years of operations.
USE OF PROCEEDS
The bonds will be issued to finance, in part, (1) the development,
construction and equipping of a new nine-floor, 193,709 square feet commercial
office building with an adjacent five and a half floor parking structure and (2)
the purchase and refurbishing of two existing buildings with approximately
27,305 square feet of space to be used for administrative and support services,
including data storage and processing services for Doral Financial and its
subsidiaries. The office building will be located on an approximately 7,426
square meters site in the Puerto Nuevo ward of the municipality of San Juan,
Puerto Rico, in the commercial sector of Franklin D. Roosevelt Avenue. The other
two buildings are located on adjacent parcels of property aggregating
approximately 3,143 square meters. The office building, parking facility and the
other two buildings are collectively referred to as the Center.
Approximately $2.1 million of the proceeds will be used to repay the
balance of a loan used to finance the purchase of the real property on which the
office building is being constructed. This loan bears interest at a fixed rate
per annum of 7.55% and had an original maturity date in December 1997 that has
been extended on several occasions and currently matures on November 20, 1999.
Doral Financial and its subsidiaries Doral Bank, Doral Mortgage and Doral
Securities intend to relocate their principal offices to the Center and will
initially occupy approximately 85 to 90% of the Center. The remaining space will
be available for rent. At present, the available rent space is expected to be
offered principally to entities who provide legal, consulting and other
professional services to Doral Financial. Construction and equipping of the
Center is expected to be substantially complete by the fourth quarter of 2001.
Set forth below are the estimated sources and uses of the proceeds of the
bonds.
<TABLE>
<S> <C>
SOURCES OF FUNDS
Gross AFICA bond proceeds................................... $44,627,500
Cash contribution by Doral Properties (1)................... 456,000
-----------
Total Sources..................................... $45,083,500
===========
USES OF FUNDS
Repayment of land loan...................................... $ 2,135,000
Construction fund........................................... 36,964,570
Capitalized interest fund (2)............................... 4,091,649
Costs of issuance........................................... 741,820
Underwriters' discount...................................... 926,636
AFICA fee................................................... 223,825
-----------
Total Uses........................................ $45,083,500
===========
</TABLE>
- ---------------
(1) Represents costs of issuance in excess of those financed with the bonds.
(2) Represents interest on bonds during the construction of the Center.
9
<PAGE> 13
CAPITALIZATION
The following table shows the unaudited indebtedness and capitalization of
Doral Financial at June 30, 1999, on an actual basis and as adjusted to give
effect to the issuance of the bonds, and the issuance on July 8, 1999 of $200
million of Doral Financial's 8.5% Medium Term Senior Notes due July 8, 2004 and
the issuance of $29 million of Senior Notes due in varying amounts from August
31, 2004 through August 31, 2007, and the application of the proceeds thereof.
In addition to the indebtedness reflected below, Doral Financial had deposits of
$760.1 million as of June 30, 1999. This table should be read together with
Doral Financial's Consolidated Financial Statements and related notes
incorporated by reference into this official statement and prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term borrowings
Loans payable............................................. $ 331,537 $ 311,537
Short-term portion of notes payable....................... 77,683 39,683
Short-term portion of securities sold under agreements to
repurchase............................................. 1,150,484 1,150,484
---------- ----------
Total short-term borrowings....................... $1,559,704 $1,501,704
========== ==========
Long-term borrowings
Long-term portion of notes payable........................ $ 54,423 $ 54,423
Long-term portion of securities sold under agreements to
repurchase............................................. 144,557 144,557
Advances from the Federal Home Loan Bank.................. 55,500 55,500
Senior Notes due 2006..................................... 75,000 75,000
Medium Term Senior Notes due 2004......................... -- 200,000
Senior Notes due 2004 through 2007........................ -- 29,000
AFICA bonds............................................... -- 45,425
---------- ----------
Total Long-term Borrowings........................ $ 329,480 $ 603,905
========== ==========
Stockholders' Equity
Serial preferred stock, $1 par value, 10,000,000 shares
authorized; 8,460 shares of 8% Convertible Cumulative
Preferred Stock issued and outstanding and 1,495,000
shares of 7% Noncumulative Monthly Income Preferred
Stock, Series A issued and outstanding................. $ 1,503 $ 1,503
Common Stock, $1.00 par value, 200,000,000 shares
authorized; 40,484,920 shares issued and 40,428,920
outstanding(1)......................................... 40,485 40,485
Paid-in capital........................................... 140,822 140,822
Legal Surplus............................................. 2,499 2,499
Retained earnings......................................... 181,410 181,410
Accumulated other comprehensive income, net of taxes(2)... (6,101) (6,101)
Treasury Stock at par value, 56,000 shares held........... (56) (56)
---------- ----------
Total stockholders' equity........................ $ 360,562 $ 360,562
========== ==========
</TABLE>
- ---------------
(1) Does not include up to 1,933,714 shares of Common Stock issuable upon
conversion of outstanding shares of 8% Convertible Cumulative Preferred
Stock or 435,600 shares of Common Stock subject to stock options.
(2) Consists of unrealized losses on securities available for sale, net of
deferred tax.
10
<PAGE> 14
SELECTED FINANCIAL DATA
The following table shows certain selected consolidated financial and
operating data of Doral Financial on a historical basis as of and for the
six-month periods ended June 30, 1999 and 1998, and for each of the five years
in the period ended December 31, 1998. This information should be read together
with Doral Financial's Consolidated Financial Statements and the related notes
incorporated by reference in this official statement and prospectus. Financial
information for the six-month periods ended June 30, 1999 and 1998 is derived
from unaudited financial statements, which, in the opinion of management,
include all adjustments necessary for a fair presentation of the results for
those periods. These adjustments consist only of normal recurring accruals.
Results for the six-month period ended June 30, 1999, are not necessarily
indicative of results for the full year. Doral Financial has made certain
reclassifications to data for years prior to 1998 to conform to 1998
classifications.
Net income for 1994 includes the cumulative effect of a change in the
method of accounting for unrealized gains and losses on trading securities. When
Doral Financial adopted this new accounting pronouncement referred to as SFAS
115 in 1994, it classified approximately $132 million of mortgage-backed
securities as trading securities and recognized a net unrealized gain of $1.2
million.
Net income for the year ended December 31, 1997, reflects a non-cash
extraordinary charge to earnings of $12.3 million resulting from the issuance to
Popular, Inc., of shares of convertible preferred stock in exchange for the
cancellation of $8.5 million of Doral Financial's subordinated debentures owned
by Popular, Inc. The charge represented the excess of the fair value of the
preferred stock on the date of the exchange over the net carrying amount of the
debentures on Doral Financial's financial statements. The return on average
assets computed on income before this extraordinary item for the year ended
December 31, 1997, would have been 2.19% and the return on average common equity
would have been 19.29%.
The return on average assets ratio is computed by dividing net income by
average assets for the period. The return on average common equity ratio is
computed by dividing net income by average common stockholders' equity for the
period. The average common equity to average assets ratio is computed by
dividing average common stockholders' equity by average assets for the period.
All ratios have been computed using month end averages. The return on average
assets and average common equity ratios for the six-month periods ended June 30,
1999 and 1998, have been presented on an annualized basis. All per share
information shown in the table has been adjusted to reflect two-for-one stock
splits effected on August 28, 1997 and May 20, 1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME
STATEMENT DATA:
Interest income....... $ 87,631 $ 66,006 $ 148,051 $ 90,131 $ 66,987 $ 61,907 $ 46,508
Interest expense...... 65,788 49,443 114,786 61,438 46,443 43,380 23,252
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income... 21,843 16,563 33,265 28,693 20,544 18,527 23,256
Provision for loan
losses.............. 753 311 883 792 797 352 300
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses......... 21,090 16,252 32,382 27,901 19,747 18,175 22,956
Non-interest income... 61,286 36,239 88,340 45,286 40,846 29,930 25,535
Non-interest
expense............. 44,446 24,804 60,883 35,390 29,314 26,045 29,746
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes,
cumulative effect
and extraordinary
item................ 37,930 27,687 59,839 37,797 31,279 22,060 18,745
Income taxes.......... 4,991 3,586 7,007 5,249 4,238 2,500 2,530
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income before
cumulative effect and
extraordinary item... 32,939 24,101 52,832 32,548 27,041 19,560 16,215
Cumulative effect of
change in accounting
principle........... -- -- -- -- -- -- 1,215
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before
extraordinary
item................ 32,939 24,101 52,832 32,548 27,041 19,560 17,430
Extraordinary item --
non-cash loss on
extinguishment of
debt................ -- -- -- 12,317 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.... $ 32,939 $ 24,101 $ 52,832 $ 20,231 $ 27,041 $ 19,560 $ 17,430
=========== =========== =========== =========== =========== =========== ===========
Cash dividends
paid........ $ 7,844 $ 4,786 $ 9,975 $ 7,199 $ 6,008 $ 4,374 $ 3,943
=========== =========== =========== =========== =========== =========== ===========
SELECTED BALANCE SHEET
DATA:
Mortgage loans held
for sale............ $ 909,983 $ 620,478 $ 883,048 $ 404,672 $ 260,175 $ 243,678 $ 262,209
Securities held for
trading, net........ 684,673 682,036 606,918 620,288 436,125 418,348 327,960
Securities held to
maturity............ 937,186 155,128 190,778 143,534 107,222 77,945 66,804
Security available for
sale................ 28,862 514,077 408,888 240,876 12,007 14,579 --
Loans receivable,
net................. 192,756 130,672 166,987 133,055 128,766 51,355 34,809
Total assets.......... 3,279,870 2,497,356 2,918,113 1,857,789 1,106,083 917,922 768,019
Loans payable and
securities sold
under agreements to
repurchase.......... 1,626,578 1,542,766 1,624,032 1,076,912 568,840 573,754 538,740
Notes payable......... 207,106 174,361 199,733 164,934 152,126 51,682 17,055
Deposits accounts..... 760,096 376,304 533,113 300,494 158,902 95,740 66,471
Stockholders'
equity.............. 360,562 246,233 269,559 186,955 150,531 129,017 90,496
NET INCOME PER COMMON
SHARE:
Basic:
Income before
cumulative effect
and extraordinary
item.............. $ 0.76 $ 0.60 $ 1.31 $ 0.89 $ 0.75 $ 0.67 $ 0.58
Cumulative effect... -- -- -- -- -- -- 0.04
Extraordinary
item.............. -- -- -- (0.34) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.... $ 0.76 $ 0.60 $ 1.31 $ 0.55 $ 0.75 $ 0.67 $ 0.62
=========== =========== =========== =========== =========== =========== ===========
Diluted:
Income before
cumulative effect
and extraordinary
item.............. $ 0.73 $ 0.58 $ 1.26 $ 0.85 $ 0.71 $ 0.64 $ 0.54
Cumulative effect... -- -- -- -- -- -- 0.04
Extraordinary
item.............. -- -- -- (0.32) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.... $ 0.73 $ 0.58 $ 1.26 $ 0.53 $ 0.71 $ 0.64 $ 0.58
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- --------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER PER SHARE DATA:
Cash dividends:
Common Stock........ $ 0.14 $ 0.11 $ 0.23 $ 0.195 $ 0.165 $ 0.145 $ 0.13
10 1/2% Preferred
Stock............. -- -- -- -- $ 0.3825 $ 1.05 $ 1.05
8% Convertible
Cumulative
Preferred Stock... $ 40.00 $ 40.00 $ 80.00 $ 15.33 -- -- --
7% Noncumulative
Preferred Stock... $ 1.24 -- -- -- -- -- --
Weighted average
common shares
outstanding:
Basic............... 40,428,920 39,445,130 39,941,068 36,680,158 36,266,244 29,231,680 27,770,936
Diluted............. 42,435,528 41,400,647 41,928,186 38,728,632 38,725,072 31,040,540 30,307,856
OPERATING DATA:
Mortgage loans
originated and
purchased........... $ 1,453,000 $ 931,000 $ 2,313,000 $ 1,037,000 $ 817,000 $ 636,000 $ 824,000
Loan servicing
portfolio......... $ 7,012,000 $ 5,140,000 $ 6,186,000 $ 4,655,000 $ 3,068,000 $ 2,668,000 $ 2,644,000
SELECTED RATIOS:
Return on average
assets.............. 2.14% 2.21% 2.17% 1.37% 2.68% 2.32% 2.78%
Return on average
common equity....... 22.10% 22.25% 21.65% 11.99% 19.35% 17.82% 20.82%
Average common equity
to average assets... 9.13% 9.46% 10.00% 11.39% 13.81% 13.02% 13.35%
</TABLE>
13
<PAGE> 17
DESCRIPTION OF THE BONDS
GENERAL
The bonds will be issued under a trust agreement between AFICA and
Citibank, N.A., as trustee. The bonds will be dated the date of their issuance
and will bear interest at such rates and will mature, subject to the rights of
redemption described below, in such amounts on June 1 and December 1 of such
years, as set forth on the inside front cover page of this official statement
and prospectus. Interest on the bonds will be paid to you on the first day of
each month commencing on December 1, 1999 until maturity or prior redemption.
Additionally, interest will be paid to you at maturity or redemption. Interest
will be computed using a 360-day year of twelve 30-day months.
The bonds will be issued as fully registered bonds without coupons in
denominations of $5,000 or any integral multiple thereof. The bonds will be
registered under the DTC book-entry only system described below. Therefore, you
will not receive a certificate for any bonds you purchase. The principal or
redemption price of and interest on the bonds will be payable as described below
under "Book-Entry Only System."
BOOK-ENTRY ONLY SYSTEM
The following information concerning DTC and DTC's book-entry system has
been obtained from DTC. AFICA, Doral Financial, Doral Properties and the
Underwriters do not take any responsibility for the accuracy thereof.
DTC will act as securities depository for the bonds. The bonds will be
issued as fully registered bonds in the name of Cede & Co., DTC's partnership
nominee. One fully registered bond will be issued for each maturity of the bonds
in the aggregate principal amount of such maturity, and will be deposited with
DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants (the "Direct Participants") deposit with
DTC. DTC also facilitates the settlement of securities transactions among Direct
Participants, such as transfers and pledges, in deposited securities through
electronic book-entry changes in accounts of the Direct Participants, thereby
eliminating the need for physical movement of securities. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of the
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that clear transactions through or maintain a custodial
relationship with a Direct Participant either directly or indirectly (the
"Indirect Participants;" and together with the Direct Participants, the
"Participants"). The rules applicable to DTC and its Participants are on file
with the Commission.
Purchases of bonds under the DTC system must be made by or through Direct
Participants which will receive a credit for the bonds on DTC's records. The
ownership interest of each actual purchaser of each bond ("Beneficial Owner") is
in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the
bonds are to be accomplished by entries made on the books of Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in the bonds, except in the event that
use of the DTC system for the bonds is discontinued.
14
<PAGE> 18
To facilitate subsequent transfers, all bonds deposited by Participants
with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The
deposit of bonds with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the bonds. DTC's records reflect only the identity of the
Direct Participants to whose accounts such bonds are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
bonds of any maturity are being redeemed, DTC's practice is to determine by lot
the amount of the interest of each Direct Participant in such maturity to be
redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the bonds.
Under its usual procedures, DTC mails an "Omnibus Proxy" to AFICA as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
bonds are credited on the record date, identified in a listing attached to the
Omnibus Proxy.
Principal of and redemption premium, if any, and interest payments on the
bonds will be made to DTC. DTC's practice is to credit Direct Participants'
accounts on each Payment Date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payment on such date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the trustee, Doral Financial, Doral Properties or AFICA, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the trustee,
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Each person for which a Participant acquires an interest in the bonds, as
nominee, may desire to make arrangements with such Participant to receive a
credit balance in the records of such Participant, and may desire to make
arrangements with such Participant to have all notices of redemption or other
communications to DTC, which may affect such persons, forwarded in writing by
such Participant and to have notification made of all interest payments.
DTC may discontinue providing its services as securities depository with
respect to the bonds at any time by giving reasonable notice to AFICA or the
trustee. In such event, AFICA will try to find a substitute securities
depository and, if unsuccessful, definitive bonds will be printed and delivered.
In addition, AFICA, in its sole discretion and without the consent of any other
person, may terminate the services of DTC as securities depository with respect
to the bonds if AFICA determines that Beneficial Owners of such bonds shall be
able to obtain definitive bonds. In such event, definitive bonds will be printed
and delivered as provided in the trust agreement and registered in accordance
with the instructions of the Beneficial Owners.
So long as Cede & Co., as nominee of DTC, or any other nominee of DTC, is
the registered owner of the bonds, all references herein to the bondholders or
registered owners of the bonds, other than under the heading "Taxation", shall
mean Cede & Co., or such other nominee, in the capacity of nominee for DTC, and
shall not mean the Beneficial Owners of the bonds.
When reference is made to any action which is required or permitted to be
taken by the Beneficial Owners, such reference shall only relate to those
permitted to act, by statute, regulation or otherwise, on behalf of such
Beneficial Owners for such purposes. When notices are given, they shall be sent
by AFICA or the trustee to DTC only.
15
<PAGE> 19
For every registration of transfer or exchange of the bonds, the Beneficial
Owner may be charged a sum sufficient to cover any tax, fee or other
governmental charge that may be imposed in relation thereto.
AFICA, THE TRUSTEE, DORAL PROPERTIES AND DORAL FINANCIAL SHALL HAVE NO
RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANT OR ANY BENEFICIAL OWNER WITH
RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT
PARTICIPANT OR INDIRECT PARTICIPANT, AS DESCRIBED ABOVE; (2) THE PAYMENT OR
TIMELINESS OF PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT
OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR
REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (3) THE DELIVERY OR TIMELINESS OF
DELIVERY BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE
TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE
TRUST AGREEMENT TO BE GIVEN TO BONDHOLDERS; (4) THE SELECTION OF THE BENEFICIAL
OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS;
OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER.
In the event that the book-entry only system is discontinued and the
Beneficial Owners become registered owners of the bonds, the following
provisions will apply: The principal of the bonds and premium, if any, thereon
when due will be payable upon presentation of the bonds at the corporate trust
office of the trustee in San Juan, Puerto Rico, and interest on the bonds will
be paid by check mailed to the persons who were the registered owners as of the
15th day of the month immediately preceding the related interest payment date,
as provided in the trust agreement. Bonds may be exchanged for an equal
aggregate principal amount of bonds in other authorized denominations and of the
same maturity and interest rate, upon surrender thereof at the trustee's
corporate trust office in San Juan, Puerto Rico. The transfer of any bond may be
registered only upon surrender thereof to the trustee along with a duly executed
assignment in form satisfactory to the trustee. Upon any such registration of
transfer, a new bond or bonds of authorized denominations in an equal aggregate
principal amount, of the same maturity, bearing interest at the same rate and
registered in the name of the transferee will be executed by AFICA and
authenticated by the trustee. No charge may be made to the bondholders for any
exchange or registration of transfer of the bonds, but any bondholder requesting
any such exchange shall pay any tax or other governmental charge required to be
paid with respect to such exchange or registration of transfer. The trustee will
not be required to exchange or to register the transfer of any bond during the
period of 15 days preceding the date of giving of notice of redemption or after
any bond or portion thereof has been selected for redemption.
Year 2000 Matters. DTC management is aware that some computer systems for
processing data ("Systems") that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter "Year 2000 problems."
DTC has informed its Participants and other members of the financial community
(the "Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions, including
principal and interest payments, to security holders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's program includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as Direct Participants, Indirect Participants and third party vendors from
whom DTC licenses software and hardware, and third party vendors on whom DTC
relies for information or the provision of services, including telecommunication
and electrical utility service providers, among others. DTC has informed the
Industry that it is contacting, and will continue to contact, third party
vendors from whom DTC acquires services to: (1) impress upon them the importance
of such services being Year 2000 compliant; and (2) determine the extent of
their efforts for Year 2000 remediation and, as appropriate, testing, of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
16
<PAGE> 20
MANDATORY REDEMPTION
Amortization Requirements. Under the trust agreement, Doral Properties is
subject to certain amortization requirements which require it to redeem a
specified principal amount of term bonds each year commencing on June 1, 2010.
Pursuant to these amortization requirements, some of the term bonds will be
redeemed semiannually at a price equal to the principal amount thereof plus
accrued interest to the redemption date beginning June 1, 2010, in the case of
the term bonds due December 1, 2014, June 1, 2015, in the case of the term bonds
due June 1, 2026, and December 1, 2026, in the case of the term bonds due
December 1, 2029. The principal amount to be redeemed and the date of redemption
is the following:
<TABLE>
<CAPTION>
TERM BONDS DUE 2014 TERM BONDS DUE 2026 TERM BONDS DUE 2029
- -------------------------------- ------------------------------ ------------------------------
DATE AMOUNT DATE AMOUNT DATE AMOUNT
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
June 1, 2010 $480,000 June 1, 2015 $ 665,000 December 1, 2026 1,415,000
December 1, 2010 495,000 December 1, 2015 690,000 June 1, 2027 1,465,000
June 1, 2011 510,000 June 1, 2016 715,000 December 1, 2027 1,515,000
December 1, 2011 530,000 December 1, 2016 740,000 June 1, 2028 1,570,000
June 1, 2012 545,000 June 1, 2017 765,000 December 1, 2028 1,625,000
December 1, 2012 565,000 December 1, 2017 790,000 June 1, 2029 1,680,000
June 1, 2013 585,000 June 1, 2018 815,000 December 1, 2029 1,730,000
December 1, 2013 605,000 December 1, 2018 845,000
June 1, 2014 625,000 June 1, 2019 875,000
December 1, 2014 645,000 December 1, 2019 905,000
June 1, 2020 935,000
December 1, 2020 970,000
June 1, 2021 1,000,000
December 1, 2021 1,035,000
June 1, 2022 1,070,000
December 1, 2022 1,110,000
June 1, 2023 1,145,000
December 1, 2023 1,185,000
June 1, 2024 1,230,000
December 1, 2024 1,270,000
June 1, 2025 1,315,000
December 1, 2025 1,360,000
June 1, 2026 1,405,000
</TABLE>
Taking into account the above amortization requirements, the average life
of the term bonds due December 1, 2014 will be 12.97 years, the average life of
the term bonds due June 1, 2026 will be 21.82 years and the average life of the
term bonds due December 1, 2029 will be 28.65 years.
Doral Properties or Doral Financial, at their option, may direct the
trustee to credit against the bonds of any maturity required to be redeemed the
principal amount of bonds of the same maturity purchased by Doral Properties or
Doral Financial and delivered to the trustee for cancellation, or redeemed
pursuant to the optional redemption provisions of the trust agreement.
Event of Taxability. The bonds are further subject to mandatory redemption
in whole at a price equal to the principal amount thereof plus accrued and
unpaid interest to the redemption date (1) upon the failure of Doral Properties
to comply with the covenant described under "Covenant as to Maintenance of
Source of Income" on page 22 of this official statement and prospectus if as a
result of such failure the interest on the bonds becomes subject to federal
taxation for Puerto Rico residents or (2) if Doral Properties or Doral Financial
shall take any other action which shall cause interest on the bonds to become
subject to federal taxation for Puerto Rico residents. No such mandatory
redemption shall be required as a result of a change in the tax laws in force on
the date of issuance of the bonds.
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Condemnation, Destruction or Damage of the Center. The bonds will be
subject to mandatory redemption, in whole or in part, at a price equal to the
principal amount thereof plus accrued and unpaid interest up to the redemption
date upon the occurrence of an event of condemnation of, damage to, or
destruction of, the Center or any portion thereof to the extent and as provided
in the pledge agreement described below. Any such redemption will be effected on
the next interest payment date occurring not less than 45 days after receipt by
the trustee of written notice from Doral Properties that the insurance or
condemnation proceeds received by the trustee as a result of any such event will
not be used to restore the Center or any portion thereof, pursuant to the terms
and conditions set forth in the pledge agreement. In such event, the trustee
will use the insurance or condemnation proceeds, as applicable, and other moneys
available to Doral Properties or Doral Financial in the case of redemption in
whole, to redeem the bonds as provided in the trust agreement.
Excess Bond Proceeds. The bonds will also be redeemed, in part, at a price
equal to the principal amount thereof plus accrued interest to the redemption
date, with any bond proceeds that have not been used at the earlier of (1) the
end of construction, (2) the third anniversary of the date of issuance of the
bonds and (3) the receipt by the trustee of notice that the Center will not be
completed.
Cessation of Operation of Center as an Industrial Facility. The bonds will
be redeemed, in whole, at a price equal to the principal amount thereof plus
accrued interest to the redemption date, if the Center ceases to operate as an
Industrial Facility for purposes of AFICA's enabling law.
OPTIONAL REDEMPTION
The bonds may be redeemed by Doral Properties at its option, in whole or in
part, at any time on or after December 1, 2009, on any date selected by Doral
Properties occurring not less than 45 days from the date the notice of
redemption is received by the trustee, and in the order of maturity determined
by Doral Properties, at the redemption prices set forth below (expressed as
percentages of the principal amount of such bonds), plus accrued interest to the
redemption date:
<TABLE>
<CAPTION>
REDEMPTION PERIOD REDEMPTION
(ALL DATES INCLUSIVE) PRICE
- ------------------------------------------------------------ ----------
<S> <C>
December 1, 2009 to November 30, 2010....................... 102%
December 1, 2010 to November 30, 2011....................... 101%
December 1, 2011 and thereafter............................. 100%
</TABLE>
EXTRAORDINARY OPTIONAL REDEMPTION
The bonds may be redeemed by Doral Properties at its option, in whole or in
part, and if in part, in such order of maturity as directed by Doral Properties,
on any date selected by Doral Properties occurring not less than 45 days from
the date the notice of redemption is received by the trustee, at a redemption
price equal to the principal amount thereof, without premium, plus accrued
interest to the date fixed for redemption, if any of the following events shall
have occurred:
(1) The Center shall have been damaged or destroyed to such an extent
that in the opinion of Doral Properties it cannot be reasonably restored or
repaired within a period of six months, or Doral Properties is thereby
prevented or will likely be prevented from causing its normal operation for
a period of six months or more, or its restoration and repair would not be
economically feasible; or
(2) Use or control of the Center shall have been taken under the
exercise of the power of eminent domain to such an extent that Doral
Properties is, or in its opinion would likely be, thereby prevented from
causing the normal operation of the Center for a period of six months or
more; or
(3) As a result of any change in the Constitution or laws of the
United States of America or Puerto Rico or of legislative or administrative
action of the United States of America or Puerto Rico or any political
subdivision, or any judicial action or regulatory action or inaction, the
loan and guaranty agreement or the trust agreement, in the opinion of Doral
Properties, shall have become void or unenforceable or impossible of
performance in any material respect, or use or occupancy of all or a
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<PAGE> 22
significant part of the Center shall, in the opinion of Doral Properties,
have been legally curtailed for six months or more, or, in the opinion of
Doral Properties, unreasonable burdens or excessive liabilities with
respect to the Center or the bonds shall have been imposed.
NOTICE AND EFFECT OF REDEMPTION; PARTIAL REDEMPTION
At least 30 days before any redemption date, notice thereof will be sent by
the trustee via first-class mail, postage prepaid, to DTC, or if the book-entry
only system is discontinued as described above, by first-class mail, postage
prepaid, to the registered owners of the bonds to be redeemed. If less than all
of the bonds are called for redemption, the particular bonds or portions thereof
to be redeemed will be selected as provided below, except that so long as the
book-entry only system shall remain in effect, in the event of any such partial
redemption, DTC shall reduce the credit balances of the applicable DTC
Participants in respect of the bonds, and such Participants shall in turn select
those beneficial owners whose ownership interests are to be extinguished by such
partial redemption, each by such method as DTC or such Participants, as the case
may be, in their sole discretion deem fair and appropriate.
Each notice of redemption shall set forth:
(1) the redemption date;
(2) the redemption price;
(3) if fewer than all of the bonds then outstanding shall be called for
redemption, the distinctive numbers and letters, if any, of such bonds to be
redeemed and, in the case of bonds to be redeemed in part only, the portion of
the principal amount thereof to be redeemed;
(4) that on the date fixed for redemption such redemption price will become
due and payable upon each bond or portion thereof called for redemption, and
that interest thereon shall cease to accrue on and after said redemption date;
and
(5) the place where such bonds or portions thereof called for redemption
are to be surrendered for payment of such redemption price.
In case any bond is to be redeemed in part only, the notice of redemption
shall state also that on or after the redemption date, upon surrender of such
bond, a new bond or bonds in principal amount equal to the unredeemed portion of
such bonds will be issued. Failure to mail such notice to any bondholder or any
defect in any notice so mailed shall not affect the validity of the proceedings
for the redemption of the bonds of any other bondholders.
Except with respect to the mandatory redemption of the term bonds in
accordance with the amortization requirements described above, if less than all
of the outstanding bonds shall be called for redemption, Doral Properties shall
determine the principal amount of each maturity of the bonds to be redeemed. If
less than all bonds of one maturity are to be redeemed, the bonds, or portions
thereof, to be redeemed will be selected by the trustee by such method as it
deems fair and appropriate in integral multiples of $5,000.
If notice of redemption is given and if sufficient funds are on deposit
with the trustee to provide for the payment of the principal of and premium, if
any, and interest on the bonds to be redeemed, then the bonds so called for
redemption will, on the redemption date, cease to bear interest and shall no
longer be deemed outstanding or be entitled to any benefit or security under the
trust agreement.
SOURCES OF PAYMENT AND SECURITY FOR THE BONDS
Bonds Limited Obligations of AFICA. The bonds are limited obligations of
AFICA payable solely from monies derived pursuant to the loan and guaranty
agreement. The bonds will not constitute a charge against the general credit of
AFICA and will not constitute an indebtedness of the government of Puerto Rico
or any of its political subdivisions other than AFICA.
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<PAGE> 23
The Loan and Guaranty Agreement. Under the loan and guaranty agreement,
Doral Properties will agree to deposit with the trustee in a bond fund
established under the trust agreement amounts sufficient to pay, together with
the amounts then on deposit therein, principal of and premium, if any, and
interest on the bonds. Such deposit must be made on the business day immediately
preceding the day on which the corresponding amounts of principal, premium, if
any, and interest are due and payable. Pursuant to the trust agreement, AFICA
will assign its interest in the loan agreement, except certain rights of AFICA
to indemnification, exemption from liabilities, notices and the payment of costs
and expenses, to the trustee as security for the bonds.
Guaranty of Doral Financial. Under the loan and guaranty agreement, Doral
Financial has agreed to guarantee the payments required to be made by Doral
Properties, which include payment of principal of, premium, if any, and interest
on the bonds, when and as the same become due and payable. The guarantee is
absolute and unconditional, and not subject to any circumstance that might
otherwise constitute a legal or equitable discharge of a guarantor. Subject to
the provisions of the trust agreement, holders of the bonds may proceed directly
against Doral Financial in the event of default under the bonds without first
proceeding against Doral Properties. The guaranty will rank on an equal rank
with other unsecured and unsubordinated obligations of Doral Financial.
Mortgage on Center. The bonds will be secured by a pledge of a mortgage
note in an amount equal to the aggregate principal amount of the bonds and
bearing interest at the rate of 7% per annum. The mortgage note will be secured
by a first priority mortgage lien on the Center, subject only to easements and
certain other real property rights which do not materially and adversely affect
the operation of the Center.
The mortgage note will be pledged to AFICA pursuant to a pledge agreement
as security for the obligations of Doral Properties and Doral Financial under
the loan and guaranty agreement. AFICA will assign its rights under the pledge
agreement, the mortgage and the mortgage note to the trustee for the benefit of
the bondholders.
A mortgagee title insurance policy insuring the mortgage as a first
priority lien on the Center, subject only to easements, restrictive covenants
and other real property rights which do not materially and adversely affect the
operations of the Center, will be delivered on the date of issuance of the bonds
in an amount equal to the aggregate principal amount of the bonds.
SUMMARY OF THE LOAN AND GUARANTY AGREEMENT
The following briefly summarizes the material provisions of the loan and
guaranty agreement among AFICA, Doral Properties and Doral Financial. This
summary is not complete. You should read the more detailed provisions of the
loan and guaranty agreement for provisions that may be important to you. A copy
of the loan and guaranty agreement is filed as an exhibit to the registration
statement of which this official statement and prospectus is a part.
Pursuant to the loan and guaranty agreement, AFICA will loan the proceeds
from the sale of the bonds to Doral Properties to finance a portion of the cost
of construction of the Center. Doral Properties will agree to make payments
directly to the trustee which, together with amounts then held in the bond fund
established under the trust agreement will be sufficient to make the payments of
principal of and premium, if any, and interest on the bonds as the same become
due at maturity, upon redemption or acceleration. Such deposit must be made on
or prior to the date on which the corresponding amounts of principal, premium,
if any, and interest are due and payable. (Section 4.01) Doral Financial has
unconditionally guaranteed Doral Properties' obligations under the loan and
guaranty agreement, including Doral Properties' obligation to make such
payments. (Section 4.08)
ASSIGNMENT BY AFICA
AFICA will assign all of its rights, title and interest in the loan and
guaranty agreement and will pledge and assign to the trustee any payments,
receipts and revenues receivable by it under or pursuant to the loan and
guaranty agreement and the income earned by the investment of funds held under
the trust
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<PAGE> 24
agreement, as security for payment of the principal of and premium, if any, and
interest on the bonds. Except as provided in the preceding sentence, AFICA will
not sell, assign or otherwise dispose of its interest in the loan and guaranty
agreement. (Section 6.03)
MAINTENANCE AND OPERATION OF THE CENTER
Doral Properties will cause the Center to be operated as an Industrial
Facility, as defined in the Act, and to be maintained, preserved and kept in
good repair, working order and condition and will from time to time cause to be
made all reasonably necessary and proper repairs, replacements and renewals;
provided, however, that Doral Properties will have no obligation to cause to be
maintained, preserved, repaired, replaced or renewed any element or unit of the
Center, the maintenance, repair, replacement or renewal of which becomes
uneconomic to Doral Properties because of damage or destruction or obsolescence,
or change in economic or business conditions or change in government standards
and regulations. Doral Properties shall not permit, commit or suffer any waste
of the whole or any major part of the Center and shall not use or permit the use
of the Center, or any part thereof, for any unlawful purpose or permit any
nuisance to exist thereon. (Section 4.03)
COVENANT AS TO EXISTENCE, CONSOLIDATION, MERGER OR SALE
Doral Properties and Doral Financial will maintain their existence, will
not dispose of all or substantially all of their assets and will not acquire,
consolidate with or merge into another person; provided, however, that Doral
Properties or Doral Financial may acquire, consolidate with or merge into
another person, or transfer to another person all or substantially all of their
assets and thereafter dissolve, if:
(1) the successor or transferee is solvent and irrevocably and
unconditionally assumes in writing all the obligations of Doral Properties
or Doral Financial, as the case may be, under the loan and guaranty
agreement and the trust agreement; and
(2) immediately after such consolidation, merger or transfer none of
Doral Properties, such successor or transferee, if other than Doral
Properties, or Doral Financial shall be in default in the performance or
observance of any duties, obligations or covenants under the loan and
guaranty agreement, including the Source of Income Requirements discussed
below under "Covenant as to Maintenance of Source of Income." (Section
5.01)
SALE, TRANSFER OR ENCUMBRANCE OF THE CENTER
Doral Properties may sell or otherwise transfer or encumber the Center, in
whole or in part, without the consent of AFICA or the trustee, if it meets the
following requirements:
(1) Doral Properties shall, prior to such sale, transfer or
encumbrance of the Center, notify AFICA and the trustee;
(2) prior to the proposed sale, transfer or encumbrance of the Center,
AFICA and the trustee are provided with proof satisfactory to them by Doral
Properties that the proposed transaction will not adversely affect the
income tax treatment of interest received on the bonds by bondholders; and
(3) the purchaser shall, in a certificate delivered to AFICA and the
trustee, which certificate shall be in a form reasonably satisfactory to
AFICA and the trustee, expressly agree to perform all of the obligations of
Doral Properties under the mortgage and the pledge agreement.
No sale or other transfer or encumbrance of the Center shall relieve Doral
Properties or Doral Financial of their obligations under the loan and guaranty
agreement, including the obligation to make the payments required thereby.
(Section 6.01)
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<PAGE> 25
ASSIGNMENT OF LOAN AND GUARANTY AGREEMENT BY DORAL PROPERTIES
Doral Properties may, by operation of law or otherwise, assign its interest
in the loan and guaranty agreement and in the pledge agreement and the mortgage,
in whole or in part, without the consent of AFICA or the trustee, if it meets
the following requirements:
(1) Doral Properties shall, prior to such assignment, notify AFICA and
the trustee;
(2) prior to the proposed assignment, the trustee is provided with
proof satisfactory to it by Doral Properties that such assignment or the
terms thereof will not affect adversely affect the income tax treatment of
interest received on the bonds by bondholders;
(3) the assignee shall, in a certificate delivered to AFICA and the
trustee, which certificate shall be in a form reasonably satisfactory to
AFICA and the trustee, expressly agree to pay and to perform all of the
obligations of Doral Properties under the loan and guaranty agreement, the
pledge agreement and the mortgage; and
(4) the assignee shall deliver to AFICA and the trustee a certificate
executed by its chief financial officer (or other executive officer
performing similar functions) stating that none of the obligations,
covenants and performances under the loan and guaranty agreement, the
pledge agreement and the mortgage assumed by it will conflict with or
constitute on the part of such assignee a breach of, or default under, any
indenture, mortgage, agreement or other instrument to which such assignee
is a party or by which it is bound, or under any existing law, rule,
regulation, judgment, order or decree to which such assignee is subject.
The provisions of clauses (3) and (4) above shall not apply to any
assignment of the loan and guaranty agreement, the pledge agreement or the
mortgage in which all the parties consist of Doral Properties, Doral Financial
or any of their respective subsidiaries.
Notwithstanding any of the foregoing, no assignment of the loan and
guaranty agreement or of the pledge agreement or the mortgage shall relieve
Doral Properties or Doral Financial of their obligations under the loan and
guaranty agreement, the pledge agreement or the mortgage, including the
obligation to make the payments required thereby. (Section 6.02)
COVENANT AS TO MAINTENANCE OF SOURCE OF INCOME
Doral Properties will covenant under the loan and guaranty agreement that
during each taxable year while the bonds are outstanding it will comply with the
requirements of the U.S. internal revenue code so that all interest paid or
payable on the bonds will constitute income from sources within Puerto Rico
under the general source of income rules of the U.S. internal revenue code as in
effect on the date of issuance of the bonds (the "Source of Income
Requirements").
Under the loan and guaranty agreement, Doral Properties will be required to
cause its independent accountants to submit, no later than the 120th day after
the close of each of its taxable years, a report stating whether in connection
with their audit of the books and records of Doral Properties, Doral Properties
failed to comply with any of the Source of Income Requirements during the
taxable year just ended or such other applicable period. If the independent
accountants' report should state that in the course of their audit Doral
Properties failed to comply with any of the Source of Income Requirements during
the immediately preceding taxable year or such other applicable period or if
Doral Properties provides the trustee with a certificate that indicates that
Doral Properties failed to comply with the Source of Income Requirements, or
that Doral Properties or Doral Financial has taken any other action which shall
cause interest on the bonds to become subject to federal taxation for Puerto
Rico residents, the trustee shall within five business days from the date of
receipt of such independent accountant's report or certificate of Doral
Properties, send written notice thereof to Doral Properties and each person who
was a bondholder during the preceding taxable year thereof. (Section 5.10)
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<PAGE> 26
LIMITATIONS ON LIENS AND DISPOSITION OF STOCK OF PRINCIPAL MORTGAGE BANKING
SUBSIDIARIES
The loan and guaranty agreement provides that Doral Financial will not, and
will not permit any Subsidiary to, incur, issue, assume or guarantee any
indebtedness for money borrowed if such indebtedness is secured by a pledge of,
lien on, or security interest in any shares of Voting Stock of any Principal
Mortgage Banking Subsidiary, without providing that the bonds and, at Doral
Financial's option, any other indebtedness ranking equally with the bonds, shall
be secured equally and ratably with such indebtedness. This limitation shall not
apply to (1) indebtedness secured by a pledge of, lien on or security interest
in any shares of Voting Stock of any corporation at the time it becomes a
Principal Mortgage Banking Subsidiary and (2) liens for taxes or assessments or
governmental charges or levies not then due and delinquent or the validity of
which is being contested in good faith or which are less than $5,000,000 in
amount, liens created by or resulting from any litigation or legal proceeding
which is currently being contested in good faith by appropriate proceedings or
which involve claims of less than $5,000,000, or deposits to secure (or in lieu
of) surety, stay, appeal or customs bonds. (Section 5.15)
The loan and guaranty agreement also provides that Doral Financial will not
sell, assign, transfer or otherwise dispose of any shares of, securities
convertible into or options, warrants or rights to subscribe for or purchase
shares of, Voting Stock (other than directors' qualifying shares) of any
Principal Mortgage Banking Subsidiary and will not permit any Principal Mortgage
Banking Subsidiary to issue (except to Doral Financial) any shares of,
securities convertible into or options, warrants or rights to subscribe for or
purchase shares of, Voting Stock of any Principal Mortgage Banking Subsidiary,
except for sales, assignments, transfers or other dispositions that:
- are for fair market value on the date thereof, as determined by the Board
of Directors of Doral Financial (which determination shall be conclusive)
and, after giving effect to such disposition and to any possible
dilution, Doral Financial will own not less than 80% of the shares of
Voting Stock of such Principal Mortgage Banking Subsidiary then issued
and outstanding free and clear of any security interest;
- are made in compliance with an order of a court or regulatory authority
of competent jurisdiction, as a condition imposed by any such court or
authority permitting the acquisition by Doral Financial, directly or
indirectly, of any other mortgage banking institution or entity the
activities of which are legally permissible for a bank holding company or
a subsidiary thereof to engage in, or as an undertaking made to such
authority in connection with such an acquisition;
- are made where such Principal Mortgage Banking Subsidiary, having
obtained any necessary regulatory approvals, unconditionally guarantees
payment when due of the principal of and premium, if any, and interest on
the bonds; or
- are made to Doral Financial or any wholly-owned subsidiary if such
wholly-owned subsidiary agrees to be bound by this covenant and Doral
Financial agrees to maintain such wholly-owned subsidiary as a
wholly-owned subsidiary.
Notwithstanding the foregoing, any Principal Mortgage Banking Subsidiary
may be merged into or consolidated with another mortgage banking institution
organized under the laws of the United States, any state thereof, Puerto Rico or
the District of Columbia if, after giving effect to such merger or
consolidation, Doral Financial or any wholly-owned subsidiary owns at least 80%
of the Voting Stock of such other mortgage banking institution then issued and
outstanding free and clear of any security interest and if, immediately after
giving effect thereto and treating any such resulting institution thereafter as
a Principal Mortgage Banking Subsidiary and as a Subsidiary for purposes of the
loan and guaranty agreement, no event of default, and no event that, after the
giving of notice or lapse of time or both, would become an event of default
under the loan and guaranty agreement, has occurred and is continuing. (Section
5.16)
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"Principal Mortgage Banking Subsidiary" means a Subsidiary, including its
Subsidiaries, that is principally engaged in the mortgage banking business and
meets any of the following conditions:
- Doral Financial's and its other Subsidiaries' investments in and advances
to the Subsidiary exceed 30 percent of the total assets of Doral
Financial and its Subsidiaries consolidated as of the end of the most
recently completed fiscal year;
- Doral Financial's and its other Subsidiaries' proportionate share of the
total assets of the Subsidiary after intercompany eliminations exceeds 30
percent of the total assets of Doral Financial and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
- Doral Financial's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principles of the Subsidiary
exceeds 30 percent of such income of Doral Financial and its Subsidiaries
consolidated for the most recently completed fiscal year.
"Principal Mortgage Banking Subsidiary" does not include, however, any
Subsidiary that is a bank or savings association unless Doral Financial
transfers to such bank or savings association the mortgage banking business
conducted by Doral Mortgage Corporation or Doral Financial's HF Mortgage Bankers
Division as of the date of this official statement and prospectus.
"Subsidiary" means any corporation of which securities entitled to elect at
least a majority of the corporation's directors shall at the time be owned,
directly or indirectly, by Doral Financial, and/or one or more Subsidiaries.
"Voting Stock" means capital stock the holders of which have general voting
power under ordinary circumstances to elect at least a majority of the board of
directors of a corporation, except capital stock that carries only the right to
vote conditioned on the happening of an event regardless of whether such event
shall have happened. (Section 1.01)
INDEMNITY
Under the loan and guaranty agreement, Doral Properties and Doral Financial
will also agree to indemnify AFICA against any claims or liabilities arising
from the construction and operation of the Center or its participation in the
financing of the Center and certain other liabilities, and will agree to pay the
fees and expenses of AFICA and the trustee. (Section 4.05)
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an event of default under the loan and guaranty
agreement:
(1) failure to pay the principal of, and premium, if any, on the bonds
when the same shall become due and payable or failure to pay interest on
the bonds after the same become due and payable and the continuation of
such failure to pay interest for a period of five days;
(2) failure to make any other payments (excluding payments with
respect to the principal of, premium, if any, and interest on the bonds)
required under the loan and guaranty agreement, the pledge agreement, the
mortgage and the mortgage note if such failure shall continue for a period
of 30 days after written notice thereof, unless a written extension is
granted by the trustee prior to its expiration;
(3) failure by Doral Properties or Doral Financial to observe or
perform certain other covenants, conditions or agreements under the loan
and guaranty agreement, the pledge agreement, the mortgage or the mortgage
note, other than a default described in (1) or (2) above, and continuation
of such failure for 90 days after written notice thereof, unless a written
extension thereof is granted by the trustee prior to its expiration,
provided, however, that if such failure may be cured but cannot be
corrected within such ninety-day period, it will not constitute an event of
default if corrective action is
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<PAGE> 28
commenced by Doral Properties during such period and diligently pursued
until such failure is corrected;
(4) acceleration of any other indebtedness of Doral Financial or any
Significant Subsidiary (as defined below), in each case exceeding
$5,000,000 in an aggregate principal amount; and
(5) certain events of bankruptcy, liquidation or similar proceedings
involving Doral Properties or Doral Financial. (Section 7.01)
"Significant Subsidiary" means a Subsidiary, including its Subsidiaries,
that meets any of the following conditions:
- Doral Financial's and its other Subsidiaries' investments in and
advances to the Subsidiary exceed 10 percent of the total assets of
Doral Financial and its Subsidiaries consolidated as of the end of the
most recently completed fiscal year;
- Doral Financial's and its other Subsidiaries' proportionate share of
the total assets of the Subsidiary after intercompany eliminations
exceeds 10 percent of the total assets of Doral Financial and its
Subsidiaries consolidated as of the end of the most recently completed
fiscal year; or
- Doral Financial's and its other Subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items
and cumulative effect of a change in accounting principles of the
Subsidiary exceeds 10 percent of such income of Doral Financial and
its Subsidiaries consolidated for the most recently completed fiscal
year. (Section 1.01)
If by reason of "Force Majeure" (as defined in the loan agreement), Doral
Properties is unable to perform any of its obligations under (3) above, Doral
Properties will not be deemed to be in default during the continuance of such
inability, including a reasonable time for the removal of the effect thereof.
(Section 7.01)
AFICA has no power to waive any default under the loan and guaranty
agreement or extend the time for the correction of any default which could
become an event of default without the consent of the trustee. (Section 7.05)
Upon the occurrence of an event of default, subject to the provisions of
the trust agreement, the trustee, as assignee of AFICA's rights, may declare all
unpaid amounts payable under the loan and guaranty agreement in respect of the
bonds to be immediately due and payable and may take any action at law or equity
necessary to enforce any obligation of Doral Properties under the loan and
guaranty agreement. (Section 7.02)
SUMMARY OF THE TRUST AGREEMENT
The following briefly summarizes the material provisions of the trust
agreement between AFICA and Citibank, N.A. This summary is not complete. You
should read the more detailed provisions of the trust agreement for the
provisions that may interest you. A copy of the trust agreement is filed as an
exhibit to the registration statement of which this official statement and
prospectus is a part.
Under the trust agreement, AFICA will assign to the trustee for the benefit
of the bondholders all of AFICA's right, title and interest in the loan and
guaranty agreement, the pledge agreement, the mortgage and the mortgage note,
except for certain rights of AFICA under the loan agreement to indemnification,
exemption from liability, notices and the payment of costs and expenses, in
trust to provide for the payment of the principal of and premium, if any, and
interest on the bonds.
CONSTRUCTION FUND
The proceeds from the sale of the bonds, other than amounts to be used to
pay the fee payable to AFICA, the existing land loan and other costs of
issuance, will be deposited with the trustee in the
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<PAGE> 29
construction fund established under the trust agreement. (Section 401) Payments
of the costs of the construction of the Center will be made from the
construction fund upon requisitions presented to the trustee signed by Doral
Properties and, under certain circumstances, AFICA. (Section 404) Any amounts
remaining in the construction fund on the earlier of (1) the third anniversary
of the date of issuance of the bonds, subject to extension by AFICA, or (2) the
receipt by the trustee of a certificate issued by Doral Properties and approved
by AFICA to the effect that the moneys in the construction fund will not be used
to pay costs of construction of the Center, will be transferred to the bond fund
and used to redeem bonds. (Section 406)
BOND FUND
Doral Properties shall cause to be deposited to the credit of the bond
fund:
(1) all amounts paid pursuant to the loan and guaranty agreement with
respect to principal of and interest on the bonds, including payments with
respect to optional and mandatory prepayments of the bonds;
(2) any amount in the construction fund to be transferred to the bond
fund in accordance with the provisions of the trust agreement described
above under "Construction Fund"; and
(3) all other moneys received by the trustee pursuant to any of the
provisions of the loan and guaranty agreement, the pledge agreement, the
mortgage or otherwise which are permitted or required or are accompanied by
directions from Doral Properties or AFICA that such moneys are to be paid
into the bond fund. (Section 502)
INVESTMENT OF FUNDS
Moneys held for the credit of all funds and accounts under the trust
agreement shall be invested in accordance with the instructions of Doral
Properties. Any investment shall mature not later than the respective dates when
the money held for the credit of such funds or accounts will be required for the
purposes intended. (Section 602)
EVENTS OF DEFAULT
Each of the following events is an event of default under the trust
agreement:
(1) Doral Properties or Doral Financial shall fail to pay the
principal of and interest on the bonds when the same shall become due and
payable and, in the case of failure to pay interest, the continuation of
such failure for a period of five days;
(2) the occurrence of certain events of bankruptcy, liquidation,
insolvency or similar proceedings involving Doral Properties or Doral
Financial; or
(3) any event of default under the loan and guaranty agreement shall
have occurred and such event of default shall not have been remedied or
waived. (Section 802)
ACCELERATION OF MATURITIES
Upon the happening and continuance of an event of default specified above,
the trustee may, and upon the written request of holders of not less than 25% in
aggregate principal amount of bonds then outstanding shall, by notice in writing
to AFICA, Doral Properties and Doral Financial, declare the principal of all the
bonds to be due and payable immediately, and upon such declaration the same
shall become and be immediately due and payable. If this happens, subject to
certain conditions, the trustee, upon the written direction of the holders of
not less than a majority in aggregate principal amount of the bonds then
outstanding, shall by a notice in writing to AFICA, Doral Properties and Doral
Financial, rescind and annul such declaration and its consequences, but no such
rescission or annulment shall extend to or affect any subsequent default or
impair any right consequent thereon. (Section 803)
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<PAGE> 30
ENFORCEMENT OF REMEDIES
Upon the happening and continuance of any event of default and the
acceleration of the bonds, then and in every such case the trustee may, and upon
the written direction of the holders of not less than 25% in aggregate principal
amount of the bonds then outstanding under the trust agreement shall, proceed,
subject to the provision of indemnification satisfactory to the trustee, to
protect and enforce its rights and the rights of the bondholders under
applicable laws, under the loan and guaranty agreement and the trust agreement.
(Section 804)
HOLDERS OF MAJORITY IN PRINCIPAL AMOUNT OF BONDS MAY CONTROL PROCEEDINGS
Subject to the provision of indemnification satisfactory to the trustee,
the holders of a majority in aggregate principal amount of the bonds then
outstanding shall have the right to direct the time, method and place of
conducting all remedial proceedings to be taken by the trustee under the trust
agreement or exercising any trust or power conferred upon the trustee, provided
that such direction shall not be otherwise than in accordance with law and the
provisions of the trust agreement. (Section 808)
RESTRICTIONS UPON ACTION BY INDIVIDUAL BONDHOLDER
No bondholder will have any right to institute any suit, action or
proceeding in equity or at law on any bond or for the execution of any trust
under the trust agreement, or for any other remedy under the trust agreement
unless: (1) such holder has previously given to the trustee notice of the event
of default on account of which such suit, action or proceeding is to be
instituted; (2) the holders of not less than 25% of the aggregate principal of
bonds then outstanding have requested of the trustee, after the right to
exercise such powers or right of action, as the case may be, has accrued, and
have afforded the trustee a reasonable opportunity, either to proceed to
exercise such powers or to institute such action, suit or proceeding in its or
their name; (3) the trustee has been offered reasonable security and indemnity
against the costs, expenses and liabilities to be incurred (including, without
limitation, indemnification for environmental liability); and (4) the trustee
has refused or neglected to comply with such request within a reasonable time.
No one or more bondholders will have any right, in any manner, to affect,
disturb or prejudice any rights under the trust agreement, or to enforce any
right thereunder, except in the manner therein provided. All suits, actions and
proceedings at law or in equity must be instituted, had and maintained in the
manner provided in the trust agreement and for the benefit of the bondholders.
Any individual right of action or other right given to one or more bondholders
by law is restricted by the trust agreement to the rights and remedies therein
provided. (Section 809)
Notwithstanding any other provision of the trust agreement, a bondholder
will have the right to institute suit for the enforcement of the payment of
principal of and premium, if any, and interest on such holder's bonds when due.
(Section 809)
SUPPLEMENTAL TRUST AGREEMENTS
The trust agreement may be amended or supplemented without the consent of
the bondholders:
(1) to cure any ambiguity or to make any other provisions with respect
to matters or questions arising under the trust agreement which shall not
be inconsistent with the provisions of the trust agreement; or
(2) to grant or confer upon the trustee for the benefit of the
bondholders any additional rights, remedies, powers, benefits, authority or
security that may lawfully be so granted or conferred; or
(3) to add to the covenants of AFICA or Doral Properties for the
benefit of the bondholders or to surrender any right or power conferred
upon AFICA or Doral Properties under the trust agreement; or
(4) to permit the qualification of the bonds for sale under the
securities laws of any of the states of the United States, and to add to
the trust agreement or any supplement or amendment thereto
27
<PAGE> 31
such other terms, conditions and provisions as may be required by the Trust
Indenture Act of 1939 or any similar federal statute. (Section 1101)
The trust agreement may be amended or supplemented with the consent of the
holders of a majority in principal amount of the bonds at the time outstanding.
However, without the consent of each bondholder affected, no amendment to the
trust agreement may:
(1) extend the time for the payment of the principal of and premium,
if any, or the interest on any bond;
(2) reduce the principal of any bond or the redemption premium, if
any, or the rate of interest thereon;
(3) create any lien or security interest with respect to the loan and
guaranty agreement or the payments thereunder, other than the lien created
by the trust agreement;
(4) give a preference or priority to any bond or bonds over any other
bond or bonds; or
(5) reduce the aggregate principal of the bonds required for consent
to such supplement or amendment or any waiver thereunder. (Section 1102)
The trustee is not obligated to execute any proposed supplement or
amendment if its rights, obligations and interests would be affected thereby.
(Section 1104)
Any amendment or supplement to the trust agreement will not become
effective without the consent of Doral Properties and Doral Financial. (Section
1105)
AMENDMENTS AND SUPPLEMENTS TO THE LOAN AND GUARANTY AGREEMENT, THE PLEDGE
AGREEMENT, THE MORTGAGE AND THE MORTGAGE NOTE
The loan and guaranty agreement, the pledge agreement, the mortgage and the
mortgage note may be amended or supplemented without the consent of the
bondholders:
(1) to identify more precisely the project being financed; or
(2) to cure any ambiguity or formal defect or omission therein or in
any supplement thereto; or
(3) to grant to or confer upon AFICA or the trustee for the benefit of
the bondholders any additional rights, remedies, powers, benefits,
authority or security that may lawfully be granted to or conferred upon
AFICA, the trustee or the bondholders; or
(4) to add to the covenants of Doral Properties or Doral Financial for
the benefit of the bondholders or to surrender any right or power therein
conferred upon Doral Properties or Doral Financial; or
(5) in connection with any other change which, in the judgment of the
trustee, will not restrict, limit or reduce the obligation of Doral
Properties or Doral Financial to make the payments under the loan and
guaranty agreement required to pay the principal of and premium, if any,
and the interest on the bonds or otherwise impair the security of the
bondholders under the trust agreement, the pledge agreement, the mortgage
and the mortgage note, provided such action shall not materially adversely
affect the interests of the bondholders; or
(6) to implement the provisions of the pledge agreement described
under "The Mortgage and the Pledge Agreement." (Section 1201)
Other than for the purposes of the above paragraph, the loan and guaranty
agreement, the pledge agreement, the mortgage and the mortgage note may be
amended or supplemented with the approval of the holders of not less than a
majority of the principal of the bonds at the time outstanding. (Section 1202)
No amendment or supplement to the loan and guaranty agreement, the pledge
agreement, the mortgage or the mortgage note will become effective without the
consent of the trustee. (Section 1203)
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<PAGE> 32
DEFEASANCE
Any bond will be deemed paid and no longer entitled to any security under
the trust agreement upon satisfaction of certain conditions and the deposit with
the trustee of sufficient funds, or Defeasance Obligations, the principal of and
the interest on which, when due, without any reinvestment thereof, will provide
moneys which will be sufficient to pay when due the principal of and premium, if
any, and interest due and to become due on such bond. If any bond is not to be
redeemed or does not mature within 60 days after such deposit, Doral Properties
must give irrevocable instructions to the trustee to give notice, in the same
manner as notice of redemption, that such deposit has been made. The bonds shall
have not been deemed paid unless the trustee shall have received an opinion of
counsel experienced in bankruptcy matters to the effect that payment to the
bondholders would not constitute a voidable preference under the provisions of
the United States Bankruptcy Code, and an opinion of counsel experienced in tax
matters under the Code to the effect that, assuming continued compliance by
Doral Properties with the Source of Income Requirements, the deposit of said
obligations or moneys would not adversely affect the interest received by the
bondholders as income from sources within Puerto Rico. (Section 1301)
"Defeasance Obligations" means noncallable Government Obligations as
defined below and, to the extent from time to time permitted by law,
(1) obligations issued or guaranteed by the Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Farm Credit System,
Federal Home Loan Banks or Student Loan Marketing Association,
(2) obligations of state, territory or local government issuers which
are rated in the highest rating category by Standard & Poor's or Moody's,
provision for the payment of the principal of and interest on which shall
have been made by deposit with the trustee or escrow agent of noncallable
Government Obligations, the maturing principal of and interest on such
Government Obligations, when due and payable, shall provide sufficient
money to pay the principal of and redemption premium, if any, and interest
on such obligations of state, territory or local government issuers, and
(3) evidences of ownership of a proportionate interest in obligations
specified in clauses (1) and (2) above held by a bank or trust company
organized and existing under the laws of the United States of America or
any state or territory thereof as custodian.(Section 101)
Government Obligations are defined as:
(1) direct obligations of, or obligations the timely payment of
principal of and interest on which are fully and unconditionally guaranteed
by, the United States of America, and
(2) any certificates or other evidences of ownership interests in
obligations or in specified portions thereof, which may consist of
specified portions of the principal thereof or the interest thereon, of the
character described in clause (1). (Section 101)
THE TRUSTEE
Citibank, N.A., the trustee under the trust agreement, is also a lender
under a loan agreement which provides a warehousing loan facility to Doral
Financial and Doral Mortgage Corporation. The trustee may have other banking
relationships with Doral Financial or Doral Properties in the ordinary course of
business.
The Trust Indenture Act imposes certain limitations on the right of the
trustee, as a creditor of Doral Financial, to obtain payment of claims in
certain cases, or to realize on certain property received in respect to any such
claim as security or otherwise. (Section 917) The trustee will be permitted to
engage in other transactions with Doral Financial, Doral Properties or their
affiliates, provided that if it acquires a conflicting interest within the
meaning of Section 310 of the Trust Indenture Act, it must generally either
eliminate such conflict or resign. (Section 914)
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<PAGE> 33
In the case an event of default shall occur and shall not be cured, the
trustee will be required to use the degree of care of a prudent person in the
conduct of its own affairs in the exercise of its powers.
THE MORTGAGE AND THE PLEDGE AGREEMENT
The bonds will be secured by a pledge of the mortgage note. The mortgage
note will be pledged to AFICA pursuant to a pledge agreement as security for the
obligations of Doral Properties and Doral Financial under the loan and guaranty
agreement. Pursuant to the trust agreement, AFICA will assign its rights under
the pledge agreement to the trustee as security for the bonds and will deliver
the mortgage note to the trustee. The mortgage note will be secured by the
mortgage.
The mortgage will be a first mortgage lien on the parcels of real property
with an approximate aggregate area of 10,569 square meters where the Center will
be located and will extend to all the buildings and structures located thereon.
The lien of the mortgage will be subject to rights of way easements, restrictive
covenants and other easements, and certain other real property rights which do
not materially and adversely affect the operation of the Center. The value of
these properties prior to the construction of the office building will be
significantly less than the principal amount of the bonds. In addition, there is
no assurance that the value of these properties after construction of the office
building will be equal to the principal amount of the bonds.
If Doral Properties sells any of the two parcels that include the two
buildings adjacent to the new office building to be used for support services,
then, at the request of Doral Properties, the trustee is required to release
such parcel from the lien of the mortgage, provided that the property still
subject to the mortgage has an appraised value equal to or greater than the
outstanding principal amount of the bonds. In addition, Doral Properties has the
right to require the trustee to release from the lien of the mortgage one of the
two parcels adjacent to the office building once the outstanding principal
amount of the bonds is reduced by $854,334, and has the right to require the
trustee to release from the lien of the mortgage the other parcel adjacent to
the office building once the outstanding principal amount of the bonds is
reduced by a further $1,368,950.
The mortgage and the pledge agreement contain covenants of Doral Properties
normally required of mortgagors with respect to properties similar to the
Center, including covenants with respect to compliance with environmental laws
and regulations and maintenance of insurance. Doral Properties is required to
maintain insurance on the Center of the types and in the amounts as are
customary for similar commercial properties in Puerto Rico. Failure by Doral
Properties to comply with these covenants is an event of default under the loan
and guaranty agreement. Pursuant to the terms of the pledge agreement, upon the
occurrence of any event of default under the loan and guaranty agreement, the
trust agreement, the mortgage or the pledge agreement, the trustee shall be
entitled to foreclose the pledge of the mortgage note and the mortgage and sell
the real estate covered by the mortgage and apply the proceeds of the sale to
the payment of the bonds.
A mortgagee title insurance policy insuring the mortgage as a first lien on
the property encumbered by the mortgage, subject only to the encumbrances
described above and certain other permitted encumbrances, will be delivered at
the time of issuance of the bonds in an amount equal to the principal amount of
the bonds.
The pledge agreement requires Doral Properties to restore or replace the
Center or the affected portions thereof in the event of any damage due to
casualty or loss due to partial condemnation, and to apply any insurance or
condemnation proceeds received as a result of such event to such restoration,
except in the case of a casualty or condemnation with an estimated cost of
restoration of $100,000 or less.
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<PAGE> 34
AFICA
GENERAL
The Puerto Rico Industrial, Tourist, Educational, Medical and Environmental
Control Facilities Financing Authority ("AFICA") is a body corporate and politic
constituting a public corporation and governmental instrumentality of Puerto
Rico. The Legislature of Puerto Rico determined that the development and
expansion of commerce, industry, and health and educational services within
Puerto Rico is essential to the economic growth of Puerto Rico and to attain
full employment and preserve the health, welfare, safety and prosperity of all
its citizens. The Legislature of Puerto Rico also determined that new methods of
financing capital investments were required to promote industry in Puerto Rico
and to provide modern and efficient medical facilities for the citizens of
Puerto Rico. Accordingly, AFICA was created under Act No. 121 of the Legislature
of Puerto Rico, approved June 27, 1977, as amended (the "Act"), for the purpose
of promoting the economic development, health, welfare and safety of the
citizens of Puerto Rico. AFICA is authorized to borrow money through the
issuance of revenue bonds and to loan the proceeds thereof to finance the
acquisition, development, construction and equipping of industrial, tourist,
educational, medical and environmental pollution control and solid waste
disposal facilities. AFICA has no taxing power. AFICA's offices are located at
Minillas Government Center, De Diego Avenue, Stop 22, San Juan, Puerto Rico
00940. AFICA's telephone number is (787) 782-4060.
GOVERNING BOARD
The Act provides that the Governing Board of AFICA shall consist of seven
members. The President of Government Development Bank for Puerto Rico ("GDB"),
the Executive Director of Puerto Rico Industrial Development Company, the
Executive Director of Puerto Rico Aqueduct and Sewer Authority, the President of
the Puerto Rico Environmental Quality Board and the Executive Director of the
Puerto Rico Tourism Company are each ex officio members of the Governing Board
of AFICA. The remaining two members of the Governing Board of AFICA are
appointed by the Governor of Puerto Rico for terms of four years. As of the date
of this official statement and prospectus, the position of the Executive
Director of the Aqueduct and Sewer Authority is vacant. The following
individuals are the current members of the Governing Board of AFICA:
<TABLE>
<CAPTION>
NAME POSITION TERM OCCUPATION
- ---- ----------- ---------------- --------------------------------
<S> <C> <C> <C>
Lourdes
Rovira-Rizek....... Chairperson Indefinite President, Government
Development Bank for Puerto
Rico
Hector
Russe-Martinez..... Member Indefinite President, Puerto Rico
Environmental Quality Board
Jose Corujo.......... Member Indefinite Executive Director, Puerto Rico
Tourism Company
Xavier Romeu......... Member Indefinite Executive Director, Puerto Rico
Industrial Development Company
James Thordsen....... Member June 27, 2002 President, James Thordsen, Inc.
Jose Salas-Soler..... Member October 22, 2001 Attorney-at-Law
</TABLE>
The Act provides that the affirmative vote of four members is sufficient
for any action taken by the Governing Board.
The following individuals are currently officers of AFICA:
Carlos Colon de Armas, Executive Director of AFICA, is also Executive Vice
President of GDB. He was appointed to these positions in February of 1999. Mr.
Colon de Armas received a PhD in finance from Purdue University in 1992. Prior
to his appointment, he was Deputy Executive Director of the Puerto Rico Highway
and Transportation Authority.
Velmarie Berlingeri, Assistant Executive Director of AFICA, is also a Vice
President of GDB. Ms. Berlingeri has been associated with GDB since 1993. She
received a Bachelor of Science in Business
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<PAGE> 35
Administration degree from the University of Puerto Rico in 1982. Prior to her
appointment, she worked in the investments area of a major private corporation
in Puerto Rico.
Delfina Betancourt Capo, Secretary and General Counsel of AFICA, is also
Senior Vice President and General Counsel of GDB. Ms. Betancourt has been
associated with GDB since 1984. She received a law degree from Cornell
University in 1982.
OUTSTANDING REVENUE BONDS AND NOTES OF AFICA
As of June 30, 1999, AFICA had revenue bonds and notes issued and
outstanding in the principal of approximately $2.5 billion. All such bond and
note issues have been authorized and issued pursuant to trust agreements or
resolutions separate from and unrelated to the trust agreement relating to the
bonds and are payable from sources other than the payments under the loan
agreement.
Under the Act, AFICA may issue additional bonds and notes from time to time
to finance industrial, tourist, educational, medical or pollution control
facilities. However, any such bonds and notes would be authorized and issued
pursuant to other trust agreements or resolutions separate from and unrelated to
the trust agreement relating to the bonds and would be payable from sources
other than the payments under the loan agreement.
GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO
As required by Act No. 272 of the Legislature of Puerto Rico, approved May
15, 1945, as amended, GDB has acted as a financial advisor to AFICA in
connection with the issuance and sale of the bonds.
GDB is a public corporation with varied governmental financial functions.
Its principal functions are to act as financial advisor to and fiscal agent for
Puerto Rico, its municipalities and its public corporations in connection with
the issuance of bonds and notes, to make advances to public corporations and to
make loans to private enterprises that will aid in the economic development of
Puerto Rico. The underwriters have been selected by GDB to act from time to time
as underwriters of its obligations and the obligations of Puerto Rico, its
instrumentalities and public corporations. The underwriters or their affiliates
also participate in other financial transactions with GDB.
TAXATION
In the opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, under
the provisions of the Acts of Congress and the laws of Puerto Rico now in force:
1. The bonds and the transfer of the bonds, including any gain derived
upon the sale of the bonds, are exempt from Puerto Rico income tax pursuant
to Article 8(b) of Act No. 121 of the Legislature of Puerto Rico.
2. Interest on the bonds is:
(A) excluded from the gross income of the recipient thereof for
Puerto Rico income tax purposes pursuant to Section 1022(b)(4)(B) of the
Puerto Rico Internal Revenue Code of 1994, as amended;
(B) exempt from Puerto Rico income tax and alternative minimum tax
pursuant to Section 1022(b)(4)(B) of the Puerto Rico Internal Revenue
Code, Article 8(b) of Act No. 121 of the Legislature of Puerto Rico, and
Section 3 of the Puerto Rico Federal Relations Act; and
(C) exempt from Puerto Rico municipal license tax pursuant to
Section 9(25) of the Puerto Rico Municipal License Tax Act of 1974, as
amended, and Section 3 of the Puerto Rico Federal Relations Act.
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<PAGE> 36
3. The bonds are exempt from Puerto Rico personal property tax
pursuant Section 3.11 of the Puerto Rico Municipal Property Tax Act of
1991, as amended, and Section 3 of the Puerto Rico Federal Relations Act.
4. The bonds are exempt from Puerto Rico (A) gift tax with respect to
donors who are residents of Puerto Rico at the time the gift is made and
(B) estate tax with respect to estates of decedents who are residents of
Puerto Rico at the time of death, excluding, in each case, United States
citizens who acquired their United States citizenship other than by reason
of birth or residence in Puerto Rico.
5. The bonds will be considered an obligation of an instrumentality of
Puerto Rico for purposes of (i) the non-recognition of gain rules of
Section 1112(f)(2)(A) of the Puerto Rico Internal Revenue Code applicable
to certain involuntary conversions and (ii) the exemption from the surtax
imposed by Section 1102 of the Puerto Rico Internal Revenue Code available
to corporations and partnerships that have a certain percentage of their
net income invested in obligations of instrumentalities of Puerto Rico and
certain other investments.
6. Interest on the bonds constitutes "industrial development income"
under Section 2(j) of the Puerto Rico Industrial Incentives Act of 1963,
the Puerto Rico Industrial Incentives Act of 1978, the Puerto Rico Tax
Incentives Act of 1987, and the Puerto Rico Tax Incentives Act of 1998, as
amended (collectively, the "Acts"), when received by a holder of a grant of
tax exemption issued under any of the Acts that acquired the bonds with
"eligible funds", as such term is defined in the Acts.
In the opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, based
upon the provisions of the U.S. internal revenue code now in force and assuming
that Doral Properties complies with the source of income covenants contained in
the loan and guaranty agreement, then:
1. interest received or accrued, or "original issue discount" within
the meaning of the U.S. internal revenue code, on the bonds is excludable
from gross income for income tax purposes under the U.S. internal revenue
code if the holder of the bonds is an individual who is a bona fide
resident of Puerto Rico during the entire taxable year in which such
interest is received or accrued,
2. interest received or accrued, or "original issue discount", on the
bonds is not subject to federal income taxation if the holder of the bonds
is a corporation organized under the laws of Puerto Rico or any foreign
country and the interest is not effectively connected with the conduct of a
trade or business in the United States by the corporation, the corporation
is not a foreign personal holding company, a controlled foreign corporation
or a passive foreign investment company under the U.S. internal revenue
code, and the corporation is not treated as a domestic corporation for the
purposes of the U.S. internal revenue code; and
3. interest on the bonds is not excludable from the gross income of
the recipients thereof for federal income tax purposes under Section 103(a)
of the U. S. internal revenue code.
United States taxpayers, other than individuals who are bona fide residents
of Puerto Rico during the entire taxable year, will be subject to federal income
tax on any gain realized upon the sale or exchange of the bonds. Pursuant to
Notice 89-40 issued by the United States Internal Revenue Service on March 27,
1989, gain on the sale of the bonds, excluding "original issue discount" accrued
under the U.S. internal revenue code as of the date of such sale or exchange, by
an individual who is a bona fide resident of Puerto Rico during the entire
taxable year and that is a resident of Puerto Rico for purposes of Section
865(g)(1) of the U.S. internal revenue code will constitute Puerto Rico source
income and, therefore, qualify for the exclusion provided in Section 933(l) of
the U.S. internal revenue code, provided such bonds do not constitute inventory
in the hands of such individual.
The Puerto Rico Internal Revenue Code does not provide rules with respect
to the treatment of the excess of the amount due at maturity of a bond over its
initial offering price ("original issue discount").
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<PAGE> 37
Under current administrative practice followed by the Puerto Rico Treasury
Department, original issue discount is treated as interest.
You should be aware that ownership of the bonds may result in having a
portion of your interest expense allocable to interest on the bonds disallowed
for purposes of computing the regular tax and the alternative minimum tax for
Puerto Pico income tax purposes.
The opinion of Fiddler Gonzalez & Rodriguez, LLP, bond counsel, regarding
the tax consequences under the U.S. internal revenue code and the Puerto Rico
Internal Revenue Code arising from ownership or disposition of the bonds is
limited to the above.
RATINGS
The bonds are rated "Baa3" by Moody's Investors Service, Inc., "BBB-" by
Standard & Poor's Ratings Services and "BBB" by Duff & Phelps. There is no
assurance that any rating given to the bonds will remain in effect for any given
period or that it will not be revised downward or withdrawn entirely by Standard
& Poor's, Duff & Phelps or Moody's if, in their sole judgment, circumstances so
warrant. Any such downward revision or withdrawal of a rating may have an
adverse effect on the market prices of the bonds.
The ratings given to the bonds reflect only the views of Standard & Poor's,
Duff & Phelps and Moody's. An explanation of the significance of any rating may
be obtained from Standard & Poor's at 55 Water St., New York, New York 10041;
from Duff & Phelps at 55 East Monroe Street, Chicago, Illinois 60608; and from
Moody's at 99 Church Street, New York, New York 10007. Attached as Appendix B
are the descriptions given by these rating agencies to their investment grade
rating classifications. A rating does not constitute a recommendation to buy,
sell or hold the bonds, and each should be evaluated independently of any other
rating.
Standard & Poor's, Duff & Phelps and Moody's were provided with materials
relating to Doral Properties, Doral Financial, the bonds and other relevant
information, and no application has been made to any other rating agency for
purposes of obtaining a rating on the bonds. In addition, if requested, Doral
Properties and Doral Financial shall deliver to Standard & Poor's, Duff & Phelps
and Moody's, from time to time, such documents and other relevant information
required for purposes of Standard & Poor's, Duff & Phelps and Moody's restating
or reconfirming the rating of the bonds.
LEGAL INVESTMENT
The bonds will be eligible for deposit by banks in Puerto Rico to secure
public funds and will be approved investments for insurance companies to qualify
them to do business in Puerto Rico as required by law.
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<PAGE> 38
PLAN OF DISTRIBUTION
Subject to the terms and conditions of a certain bond purchase agreement to
be entered into among AFICA, Doral Properties, Doral Financial and the
underwriters named on the cover page of this official statement and prospectus
(the "bond purchase agreement"), AFICA has agreed to sell to the underwriters,
and each of the underwriters has severally agreed to purchase from AFICA, the
aggregate principal amount of bonds set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF BONDS
- ----------- ----------------
<S> <C>
Popular Securities, Inc..................................... $17,906,000
PaineWebber Incorporated of Puerto Rico..................... 8,953,000
Doral Securities, Inc....................................... 4,476,500
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 4,476,500
Morgan Stanley & Co. Incorporated........................... 4,476,500
Salomon Smith Barney Inc.................................... 4,476,500
-----------
Total........................................... $44,765,000
</TABLE>
Under the terms of the bond purchase agreement, the underwriters are
obligated to purchase all of the bonds shown on the inside front cover page of
this official statement and prospectus, if any bonds are purchased.
The underwriters will purchase the bonds at the public offering price
thereof less the underwriting discount set forth below:
<TABLE>
<CAPTION>
AGGREGATE OFFERING PROCEEDS TO
PRICE OF THE UNDERWRITING DORAL
BONDS DISCOUNT PROPERTIES(1)
------------------ ------------ --------------
<S> <C> <C> <C>
Per bond.................................... 98.75%-100% 2.07% 96.68%-97.93%
Total....................................... $ 44,627,500 $926,635.50 $43,700,864.50
</TABLE>
- ---------------
(1) Before deducting expenses of this offering payable by Doral Properties
estimated at $963,000.
The bonds are a new issue of securities with no established trading market.
The underwriters have advised Doral Properties and Doral Financial that they
presently intend to make a market as permitted by applicable laws and
regulations. The underwriters are not obligated, however, to make a market in
the bonds and any such market making may be discontinued at any time at the sole
discretion of the underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the bonds.
The underwriters propose initially to offer the bonds to the public, when,
as and if issued by AFICA and accepted by the underwriters, at the initial
public offering prices set forth or derived from information shown on the inside
front cover page of this official statement and prospectus. The initial offering
prices may be changed from time to time by the underwriters. The underwriters
may offer and sell the bonds to certain dealers (including dealers depositing
bonds into investment trusts) and others at prices lower than the initial public
offering prices stated or derived from information shown on the inside front
cover page hereof.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the bonds, including stabilizing, syndicate short covering and penalty bid
transactions. Such stabilizing, if commenced, may be discontinued at any time.
The underwriters have informed Doral Properties and Doral Financial that,
in accordance with Rule 2720(l) of the NASD, they will not sell bonds to
accounts over which they exercise discretionary authority without the prior
specific written authorization of the customer.
35
<PAGE> 39
The bond purchase agreement will provide that the obligations of the
underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The underwriters are committed to
purchase all of the bonds if any are purchased.
Doral Properties and Doral Financial have agreed to reimburse the
underwriters for their out of pocket expenses (including fees of their counsel)
in connection with the sale of the bonds. Doral Properties and Doral Financial
have also agreed to indemnify the underwriters and AFICA against certain civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
thereof.
Doral Securities, Inc., is a wholly-owned subsidiary of Doral Financial and
an affiliate of Doral Properties. Accordingly, the offering is being conducted
in accordance with Rule 2720 of the National Association of Securities Dealers,
Inc.
Several of the underwriters have from time to time been customers of,
engaged in transactions with, or performed services for, Doral Financial and its
subsidiaries in the ordinary course of business. The underwriters may continue
to do so in the future. In addition, Popular, Inc., the parent company of
Popular Securities, Inc., one of the underwriters, owns all the outstanding
shares of Doral Financial's 8% Preferred Stock. The shares of common stock
issuable upon conversion of the 8% Preferred Stock together with other shares of
common stock owned by Popular, Inc. equal approximately 4.9% of Doral
Financial's outstanding common stock.
CONTINUING DISCLOSURE COVENANT
Doral Financial will enter into a continuing disclosure agreement with the
trustee wherein Doral Financial will covenant for the benefit of the holders and
the beneficial owners of the bonds to file within 120 days after the end of each
fiscal year with each nationally recognized municipal securities information
repository ("NRMSIR") and with any Puerto Rico state information depository
("SID"), core financial information and operating data for Doral Financial and
its consolidated subsidiaries for such fiscal year, including (1) audited
financial statements for Doral Financial prepared in accordance with generally
accepted accounting principles in effect from time to time, and (2) operating
and financial data generally found or incorporated by reference in this official
statement and prospectus. So long as Doral Financial is subject to the
informational requirements of the Securities Exchange Act of 1934, Doral
Financial expects to provide this core financial information and operating data
by filing with each NRMSIR and with any Puerto Rico SID copies of its Annual
Report on Form 10-K. However, in the event that at any time Doral Financial
ceases to be subject to the informational requirements of the Securities
Exchange Act of 1934, Doral Financial may modify the scope and format of the
operating and financial data filed with each NRMSIR and any Puerto Rico SID,
provided that such data will include at least information of the type generally
found in items 1, 2, 3 and 7 of its Annual Report on Form 10-K.
Doral Financial will also covenant to file in a timely manner with each
NRMSIR or with the Municipal Securities Rulemaking Board ("MSRB"), and with any
Puerto Rico SID, notice of any of the following events with respect to the
bonds, to the extent applicable, if material:
(1) principal and interest payment delinquencies;
(2) non-payment related defaults;
(3) unscheduled draws on debt service reserves reflecting financial
difficulties;
(4) unscheduled draws on credit enhancements reflecting financial
difficulties;
(5) substitution of credit or liquidity providers, or their failure to
perform;
(6) adverse tax opinions or events affecting the tax-exempt status of
the bonds;
(7) modifications to rights of bondholders;
(8) bond calls;
(9) defeasances;
36
<PAGE> 40
(10) release, substitution, or sale of property securing repayment of
the bonds; and
(11) rating changes.
Doral Financial will also covenant to file in a timely manner with each
NRMSIR or with the MSRB, and with any Puerto Rico SID, notice of a failure to
provide the required annual financial information on or before the specified
period.
These covenants have been made in order to assist the Underwriters in
complying with paragraph (b)(5) of Rule 15c2-12 of the SEC.
Doral Financial does not undertake to provide the above-described event
notice of a scheduled redemption, not otherwise contingent upon the occurrence
of an event, if the terms, dates and amounts of redemption are set forth in
detail in this official statement and prospectus under "The Bonds -- Mandatory
Redemption."
As of the date of this official statement and prospectus, there was no
Puerto Rico SID. The nationally recognized municipal securities information
repositories are: Bloomberg Municipal Repository, P.O. Box 840, Princeton, New
Jersey 08542-0840; Kenny Information Systems, Inc., Attn: Kenny Repository
Service, 55 Water Street, New York, New York 10004; Thompson NRMSIR, 395 Hudson
Street, New York, New York 10004, Attn: Municipal Disclosure; and DPC Data Inc.,
One Executive Drive, Fort Lee, New Jersey 07024.
Doral Financial may from time to time choose to provide notice of the
occurrence of certain other events in addition to those listed above if, in its
judgment, such other events are material with respect to the bonds, but Doral
Financial does not undertake to provide any such notice of the occurrence of any
material event except those events listed above.
No bondholder may institute any suit, action or proceeding at law or in
equity ("Proceeding") for the enforcement of the foregoing covenants or for any
remedy for breach thereof, unless such bondholder shall have filed with Doral
Financial written notice of any request to cure such breach, and Doral Financial
shall have refused to comply within a reasonable time. All Proceedings shall be
instituted only as specified in such Continuing Disclosure Agreement in any
federal or Puerto Rico court located in the Municipality of San Juan, and for
the equal benefit of all bondholders of the outstanding bonds benefitted by the
same or a substantially similar covenant, and no remedy shall be sought or
granted other than specific performance by Doral Financial of the covenant at
issue. Notwithstanding the foregoing, no challenge to the adequacy of the
information provided in accordance with the filings mentioned above may be
prosecuted by any bondholder except in compliance with the remedial and
enforcement provisions contained in the trust agreement. See "Summary of the
Trust Agreement -- Enforcement of Remedies."
The above covenants may only be amended or waived if:
(1) the amendment or waiver is made in connection with a change in
circumstances that arises from a change in legal requirements, change in
law, or change in the identity, nature or status of Doral Properties or
Doral Financial, the covenants, as amended, or the provision as waived,
would have complied with the requirements of the Rule at the time of award
of the bonds, after taking into account any amendments or change in
circumstance as evidenced by the receipt of an opinion of counsel
experienced in federal securities laws acceptable to the trustee and Doral
Financial; and the amendment or waiver does not materially impair the
interests of the bondholders, as determined by the trustee or by counsel
experienced in federal securities laws acceptable to the trustee and Doral
Financial; and
(2) the annual financial information containing, if applicable, the
amended operating data or financial information will explain, in narrative
form, the reasons for the amendment or waiver and the impact of the change
in the type of operating data or financial information being provided.
37
<PAGE> 41
WHERE YOU CAN FIND MORE INFORMATION
Doral Financial files annual, quarterly and current reports, proxy
statements and other information with the SEC. Doral Financial has also filed
with the SEC a registration statement on Form S-3, to register the securities
being offered by this official statement and prospectus. This official statement
and prospectus, which forms part of the registration statement, does not contain
all of the information included in the registration statement. For further
information about Doral Financial and the securities offered in this official
statement and prospectus, you should refer to the registration statement and its
exhibits.
You may read and copy any document filed by Doral Financial with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Doral Financial files its SEC materials
electronically with the SEC, so you can also review Doral Financial's filings by
accessing the web site maintained by the SEC at http://www.sec.gov. This site
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
The SEC allows Doral Financial to "incorporate by reference" the
information it files with them, which means that it can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be a part of this official statement
and prospectus. Information that Doral Financial files later with the SEC will
automatically update and supersede information in this official statement and
prospectus. In all cases, you should rely on the later information over
different information included in this official statement and prospectus. Doral
Financial has previously filed the following documents with the SEC and is
incorporating them by reference into this official statement and prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and
June 30, 1999; and
- Current Reports on Form 8-K, dated January 12, 1999, February 22, 1999,
April 8, 1999, May 14, 1999, July 7, 1999, August 3, 1999, September 1,
1999, and October 7, 1999.
Doral Financial also incorporates by reference, from the date of the
initial filing of the registration statement, all documents filed by it with the
SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 after the date of this official statement and prospectus and until Doral
Financial sells all of the securities being offered by this official statement
and prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning Doral Financial at the following address:
Doral Financial Corporation
Attn.: Mario S. Levis, Executive
Vice President & Treasurer
1159 Franklin D. Roosevelt Avenue
San Juan, Puerto Rico 00920
(787) 749-7108
38
<PAGE> 42
LEGAL MATTERS
Legal matters incident to the authorization, issuance and sale of the bonds
are subject to the unqualified approving opinion of Fiddler Gonzalez &
Rodriguez, LLP, San Juan, Puerto Rico, Bond Counsel. Certain legal matters will
be passed upon for Doral Properties and Doral Financial by Pietrantoni Mendez &
Alvarez LLP, San Juan, Puerto Rico, and for the underwriters by O'Neill &
Borges, San Juan, Puerto Rico. As of the date of this official statement and
prospectus, attorneys working in Pietrantoni Mendez & Alvarez LLP owned, in the
aggregate, approximately 3,468 shares of common stock of Doral Financial.
EXPERTS
The financial statements of Doral Financial as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
incorporated by reference in this official statement and prospectus have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
PUERTO RICO INDUSTRIAL, TOURIST,
EDUCATIONAL, MEDICAL AND
ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
By: /s/ Carlos Colon de Armas
------------------------------------
Carlos Colon de Armas
Executive Director
APPROVED:
DORAL PROPERTIES, INC.
By: /s/ Mario S. Levis
----------------------------------
Mario S. Levis
Executive Vice President
DORAL FINANCIAL CORPORATION
By: /s/ Mario S. Levis
----------------------------------
Mario S. Levis
Executive Vice President
39
<PAGE> 43
APPENDIX A
PROPOSED FORM OF OPINION OF BOND COUNSEL
November , 1999
Puerto Rico Industrial, Tourist, Educational,
Medical and Environmental Control Facilities
Financing Authority
San Juan, Puerto Rico
Gentlemen:
We have examined Act No. 121 of the Legislature of Puerto Rico, approved
June 27, 1977, as amended (the "Act"), creating Puerto Rico Industrial, Medical,
Educational and Environmental Pollution Control Facilities Financing Authority
(the "Authority"), a body corporate and politic constituting a public
corporation and governmental instrumentality of Puerto Rico.
We have also examined certified copies of the resolution of the Board of
Directors of the Authority authorizing the execution and delivery of the Trust
Agreement and the Loan Agreement hereinafter referred to, and certified copies
of the proceedings and other proofs submitted relative to the authorization,
issuance, and sale of the following bonds (the "Bonds"):
$44,765,000
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL
AND ENVIRONMENTAL CONTROL
FACILITIES FINANCING AUTHORITY
INDUSTRIAL REVENUE BONDS, 1999 SERIES A
(DORAL FINANCIAL CENTER PROJECT)
The Bonds are issued under and pursuant to a Deed of Trust Agreement (the
"Trust Agreement"), dated the date hereof, by and between the Authority and
Citibank, N.A., San Juan, Puerto Rico, Trustee (the "Trustee").
The proceeds of the sale of the Bonds are to be used for the purpose of
financing in part the development, construction, and equipping of a commercial
office building with an adjacent parking structure to be known as the Doral
Financial Center the ("Project") to be located in the Municipality of San Juan,
Puerto Rico.
The Authority has entered into a Loan and Guaranty Agreement, dated the
date hereof (the "Loan Agreement"), with Doral Properties, Inc. (the "Borrower")
and Doral Financial Corporation (the "Guarantor") providing for the loan of the
proceeds of the sale of the Bonds to the Borrower and for repayment by the
Borrower of the loan in amounts sufficient to pay the principal of and interest
on the Bonds as the same will become due and payable. The Loan Agreement
provides that the loan repayments will be paid directly to the Trustee and will
be deposited to the credit of a special fund created by the Trust Agreement and
designated "Industrial Revenue Bonds 1999 Series A (Doral Financial Center
Project) Bond Fund" (the "Bond Fund"), which special fund is charged with the
payment of the principal of, premium, if any, and interest on the Bonds. The
obligations of the Borrower under the Loan Agreement are guaranteed by the
Guarantor. As additional security for the Bonds, the Authority will grant in
trust to the Trustee for the benefit of the Bondholders, substantially all its
rights under a first mortgage lien on the Project granted by the Borrower to the
Authority pursuant to a Pledge and Security Agreement by and between the
Borrower and the Authority (the "Pledge Agreement"). The Loan Agreement, except
for certain rights of the Authority, and the repayments thereunder, has been
assigned to the Trustee.
The Bonds are subject to redemption as provided in the Trust Agreement.
A-1
<PAGE> 44
As to any questions of fact material to our opinion, we have relied upon
representations of the Authority, the Borrower, and the Guarantor contained in
the Trust Agreement and the Loan Agreement, the certified proceedings and other
certifications by officials of the Authority, the Borrower, and the Guarantor
without undertaking to verify the same by independent investigation. For the
purposes of this opinion we assume that the Borrower and the Guarantor will
comply with all provisions of the Loan Agreement, particularly those dealings
with the source of income and that the proceeds of the Bonds will be used in
accordance with the provisions of the Trust Agreement.
We have also examined one of the Bonds as executed and authenticated.
All capitalized words and terms used in this opinion letter and not
otherwise defined herein will have the meanings ascribed to them in the Trust
Agreement.
From such examination, we are of the opinion that:
1. The Act is valid.
2. The proceedings of the Board of Directors of the Authority required
in connection with the authorization, issuance and sale of the Bonds and
the authorization, execution, and delivery of the Loan Agreement, the Trust
Agreement and the Pledge Agreement have been validly and legally taken.
3. The Trust Agreement, the Loan Agreement and the Pledge Agreement
have been duly authorized, executed and delivered by the Authority and
assuming due authorization, execution and delivery by the other parties
thereto, constitute the legal, valid, binding and enforceable obligations
of the Authority in accordance with their terms, except to the extent such
enforceability may be limited by bankruptcy, insolvency or other laws
affecting creditors' rights generally, and subject to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4. The Bonds have been duly authorized by the Authority and constitute
legal, valid, and binding obligations of the Authority, payable solely from
the Bond Fund and entitled to the benefit of the Trust Agreement.
5. All right, title and interest of the Authority in and to the Loan
Agreement (except certain rights of the Authority including its rights to
payment of expenses indemnity) have been validly assigned to the Trustee.
6. The Bonds do not constitute an indebtedness of either Puerto Rico
or any of its political subdivisions, other than the Authority, and neither
Puerto Rico nor any of such political subdivisions, other than the
Authority, will be liable thereon.
7. The Bonds, and the transfer of the Bonds, including any gain
derived upon the sale of the Bonds, are exempt from Puerto Rico income tax
pursuant to Article 8(b) of the Act.
8. Interest on the Bonds is (i) excluded from the gross income of the
recipient thereof for Puerto Rico income tax purposes pursuant to Section
1022(b)(4)(B) of the Puerto Rico Internal Revenue Code of 1994, as amended
(the "PR Code"); (ii) exempt from Puerto Rico income tax and alternative
minimum tax pursuant to Section 1022(b)(4)(B) of the PR Code, Article 8(b)
of the Act, and Section 3 of the Puerto Rican Federal Relations Act (the
"PRFRA"); and (iii) exempt from Puerto Rico municipal license tax pursuant
to Section 9(25) of the Puerto Rico Municipal License Tax Act of 1974, as
amended, and Section 3 of the PRFRA.
9. The Bonds are exempt from Puerto Rico personal property tax
pursuant to Section 3.11 of the Puerto Rico Municipal Property Tax Act of
1991, as amended, and Section 3 of the PRFRA.
10. The Bonds are exempt from Puerto Rico (i) gift tax with respect to
donors who are residents of Puerto Rico at the time the gift is made and
(ii) estate tax with respect to estates of decedents who are residents of
Puerto Rico at the time of death, excluding in each case United States
citizens
A-2
<PAGE> 45
who acquired their United States citizenship other than by reason of birth
or residence in Puerto Rico.
11. The Bonds will be considered an obligation of an instrumentality
of Puerto Rico for purposes of (i) the non-recognition of gain rules of
Section 1112(f)(2)(A) of the PR Code applicable to certain involuntary
conversions and (ii) the exemption from the surtax imposed by Section 1102
of the PR Code available to corporations and partnerships that have a
certain percentage of their net income invested in obligations of
instrumentalities of Puerto Rico and certain other investments.
12. Interest on the Bonds constitutes "industrial development income"
under Section 2(j) of the Puerto Rico Industrial Incentives Act of 1963,
the Puerto Rico Industrial Incentives Act of 1978, the Puerto Rico Tax
Incentives Act of 1987, and the Puerto Rico Tax Incentives Act of 1998, as
amended (collectively, the "Acts"), when received by a holder of a grant of
tax exemption issued under any of the Acts that acquired the Bonds with
"eligible funds", as such term is defined in the Acts.
13. Assuming that the Borrower complies with the source of income
representations, warranties and covenants contained in the Loan Agreement,
then:
(A) Interest received or accrued, or "original issue discount"
(within the meaning of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"); "OID"), on the Bonds is excludable from gross
income pursuant to Section 933(1) of the Code if the holder of the Bonds
is an individual who is a bona fide resident of Puerto Rico during the
entire taxable year in which the interest is received or accrued.
(B) Interest received or accrued, or OID, on the Bonds is not
subject to United States federal income tax if the holder of the Bonds
is a corporation organized under the laws of Puerto Rico or any foreign
country and such interest is not effectively connected with the conduct
of a trade or business in the United States by such corporation, such
corporation is not a foreign personal holding company, a controlled
foreign corporation or a passive foreign investment company under the
Code, and such corporation is not treated as a domestic corporation for
the purposes of the Code.
14. Interest on the Bonds is not excluded from the gross income of the
recipient thereof for United States federal income tax purposes under
Section 103(a) of the Code.
United States taxpayers, other than individuals who are bona fide residents
of Puerto Rico during the entire taxable year, will be subject to United States
federal income tax on gain realized upon the sale or exchange of the Bonds.
Pursuant to Notice 89-40, 1989-1 CB 681, gain on the sale of the Bonds (not
including original issue discount accruing under the Code as of the date of such
sale or exchange) by an individual who is a bona fide resident of Puerto Rico
for purposes of Section 865(g)(1) of the Code will constitute income from
sources within Puerto Rico and will qualify for the exclusion provided in
Section 933(1) of the Code, provided that the Bonds do not constitute inventory
property in such individual's hands.
The PR Code does not provide rules with respect to the treatment of the
excess of the amount due at maturity of a bond over its initial offering price
("original issue discount"). Under current administrative practice followed by
the Puerto Rico Treasury Department, original issue discount is treated as
interest.
Ownership of the Bonds may result in having a portion of the interest
expense allocable to interest or original issue discount on the Bonds disallowed
for purposes of computing the regular tax and the alternative minimum tax for
Puerto Rico income tax purposes.
This opinion is limited to the above, and we express no other opinion
regarding Puerto Rico or United States tax consequences arising from ownership
or disposition of the Bonds.
This letter is furnished by us solely for the benefit of the Authority and
the holders from time to time of the Bonds and may not be relied upon by any
other person.
A-3
<PAGE> 46
We hereby consent to the inclusion of this opinion as Appendix A to the
official statement and prospectus included in the registration statement. We
further consent to the reference made to us under the captions "Summary -- Tax
Consequences," "Taxation" and "Legal Matters" in the official statement and
prospectus.
Respectfully submitted,
[To be signed
"Fiddler Gonzalez & Rodriguez, LLP"]
A-4
<PAGE> 47
APPENDIX B
INVESTMENT GRADE RATINGS OF MUNICIPAL AND CORPORATE BONDS
DESCRIPTION OF MOODY'S LONG TERM RATINGS
The purpose of Moody's ratings is to provide investors with a simple system
of gradation by which the relative investment qualities of bonds may be noted.
There are nine basic rating categories for long-term obligations, ranging from
Aaa (highest quality) to C (lowest quality). Moody's applies numerical modifiers
1, 2 and 3 in each generic rating classification from Aa to Caa. The modifier 1
indicates that the obligation ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of the generic rating category.
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
DESCRIPTION OF STANDARD & POOR'S MUNICIPAL AND CORPORATE DEBT RATINGS
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program
(including ratings on medium term note programs and commercial paper programs).
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated.
The issue credit rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the obligors or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any credit rating and may,
on occasion, rely on unaudited financial information. Credit ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or based on other circumstances.
B-1
<PAGE> 48
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment -- capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of the
obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Investment grade:
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is EXTREMELY STRONG.
AA An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is VERY STRONG.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity
to meet its financial commitment on the obligation is still STRONG.
BBB An obligation rated "BBB" exhibits ADEQUATE protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest but
AA may vary slightly from
AA- time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are
A more variable
A- in periods of greater economic stress.
BBB+ Below average protection factors but still considered sufficient for
BBB prudent investment.
BBB- Considerable variability in risk during economic cycles.
B-2
<PAGE> 49
- ------------------------------------------------------
- ------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION INCORPORATED BY
REFERENCE OR CONTAINED IN THIS OFFICIAL STATEMENT AND PROSPECTUS. NONE OF DORAL
PROPERTIES, DORAL FINANCIAL, AFICA OR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT INCORPORATED
BY REFERENCE OR CONTAINED IN THIS OFFICIAL STATEMENT AND PROSPECTUS. THIS
OFFICIAL STATEMENT AND PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS OFFICIAL STATEMENT AND PROSPECTUS
IS CORRECT ONLY AS OF THE DATE OF THIS OFFICIAL STATEMENT AND PROSPECTUS,
REGARDLESS OF THE TIME OF THE DELIVERY OF THIS OFFICIAL STATEMENT AND PROSPECTUS
OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................... 1
Risk Factors.............................. 5
Forward-Looking Statements................ 7
Recent Developments....................... 7
Doral Properties.......................... 8
Doral Financial........................... 8
Use of Proceeds........................... 9
Capitalization............................ 10
Selected Financial Data................... 11
Description of the Bonds.................. 14
Summary of the Loan and Guaranty
Agreement............................... 20
Summary of the Trust Agreement............ 25
The Mortgage and the Pledge Agreement..... 30
AFICA..................................... 31
Government Development Bank for Puerto
Rico.................................... 32
Taxation.................................. 32
Ratings................................... 34
Legal Investment.......................... 34
Plan of Distribution...................... 35
Continuing Disclosure Covenant............ 36
Where You Can Find More Information....... 38
Legal Matters............................. 39
Experts................................... 39
Appendix A: Proposed Form of Opinion of
Bond Counsel............................ A-1
Appendix B: Investment Grade Ratings of
Municipal and Corporate Bonds........... B-1
</TABLE>
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$44,765,000
AFICA
INDUSTRIAL REVENUE BONDS
1999 SERIES A
(DORAL FINANCIAL
CENTER PROJECT)
----------------------------
OFFICIAL STATEMENT
AND PROSPECTUS
----------------------------
POPULAR SECURITIES
PAINEWEBBER INCORPORATED
OF PUERTO RICO
DORAL SECURITIES
MERRILL LYNCH & CO.
MORGAN STANLEY
DEAN WITTER
SALOMON SMITH BARNEY INC.
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