Jorge L. San Miguel, Esq. Government and Legislative Affairs; Environmental Law, Energy Group Capital Member Ferraiuoli LLC

1. Puerto Rico: Economic
Transformation and
Restructuring
Jorge L. San Miguel, Esq.
Government and Legislative
Affairs; Environmental Law,
Energy Group
Capital Member
Ferraiuoli LLC

2. ❖ Key Issues Today:
• Urgent Reforms:
• Fiscal
• Economic; and
• Debt
• All are equally urgent and necessary
• Key Driver: Government Credibility
Key Issues

3. ❖ AMBAC – leading monoline insurance company
• Objective: Provide Puerto Rico (“PR”) with low cost financing and
access to capital markets
• AMBAC insures $2.2bn, net par, municipal bonds in PR
• Toll Roads, Bridges, Hospitals, Police/Fire Departments, SJ
Convention Ctr.
❖ AMBAC’s involvement in PR: over 20 years old
❖ Current exposures mature between 2016 and 2054
❖ A leading voice for sustainable long term solutions
Monoline Insurance Facts

4. Credibility: Key
Myth Facts
Bankruptcy/Chapter 9: will facilitate orderly
discussion of debt
• Not all public debt can be restructured with Chapter 9.
• Contractual process already exists.
• Won’t correct years of operational mismanagement.
• Years of lawsuits / millions of dollars.
• Erodes investor confidence.
• Forces investors to pay for inefficiency.
• Allows politicians to kick the can.
Puerto Rico has generated more financial reports in recent
years than at any time in history.
• Puerto Rico, until FY 2012-13, had published audited
Comprehensive Annual Financial Reports uninterruptedly.
• The limited reports recently produced are laden with
qualifiers and disclaimers worthy of sound legal strategies,
but unacceptable for sound policy-making.
All recent relevant financial information is disclosed in the
Krueger and Conway Report as well as the PR Fiscal and
Economic Growth Plan.
• Puerto Rico has not disclosed a CAFR since FY 2013.***
• Krueger and Conway Reports have clear disclaimers and
are based on uncorroborated and unaudited financial
information.****
* Government Development Bank Economic Activity Index. Retrieved from http://www.bgfpr.com/economy/gdb-economic-activity-index.html
** Government Development Bank. Retrieved from http://www.bgfpr.com/investors_resources/commonwealth.html
***Government Development Bank. Retrieved from www.bgfpr.com/investors_resources/commonwealth-cafr.html
****Krueger Report. Retrieved from http://www.bgfpr.com/documents/puertoricoawayforward; Conway MacKenzie Report. Retrieved from
http://www.bgfpr.com/documents/150825ConwayMacKenzieLiquidityUpdateReport.pdf; Puerto Rico Fiscal and Economic Growth Plan. Retrieved from
http://www.bgfpr.com/documents/PuertoRicoFiscalandEconomicGrowthPlan9.9.15.pdf

5. Credibility: Key
Myth Facts
$71.1B debt is not payable
• Puerto Rico debt is distributed among 18 structures and
structures are not all the same;*
• Hacienda reports more revenues than prior year;
Government reports severe cuts in expenses;
• Nothing is published and audited, however.
Debt service as a % of Revenues is
unsustainable: ~ 36-40%
• True, when you use 92% of the debt and only 34% of
revenues to calculate, using the Government’s own data.**
• When using complete data, the ratio is ~ 16%, in line with
other jurisdictions and sustainable.
Government bases the fiscal and liquidity crisis principally
on Krueger Report
• Krueger Report full disclaimer states the report is “for
discussion purposes only”, “prepared at request of
counsel”, and that it is based on public information that has
not been reviewed or consulted with auditors.***
• FY 2014 & FY 2015 CAFRs are yet to be released.****
• Government requires NDA’s to access what should be
public financial information.
* Puerto Rico Treasury; PR Fiscal and Economic Growth Plan. Retrieved from http://www.bgfpr.com/documents/PuertoRicoFiscalandEconomicGrowthPlan9.9.15.pdf
**See, e.g., “Puerto Rico: The Krueger Fallacies,” Dec. 14, 2015, by Carlos A. Colon de Armas, Finance Professor, Graduate School of Business, University of Puerto Rico.
*** Krueger Report. Retrieved from http://www.bgfpr.com/documents/puertoricoawayforward.pdf
** **Government Development Bank. Retrieved from http://www.bgfpr.com/investors_resources/commonwealth-cafr.html

6. Credibility: Key
Myth Facts
According to the Governor, there is no money, cuts have
been severe and it is now up to Congress to act…
• The PR government has been inconsistent in what it says
and does.
• On November 4, 2013, the Governor stated that Puerto
Rico had no liquidity problem; the public debt was payable;
the Puerto Rico Constitution prohibits a default; and the
government was not requesting aid from Congress. *
• On June 22, 2014, the governor indicated that his
administration approved the territory’s first balanced
budget in 22 years. **
• On June 28, 2015, however, the governor announced that
the $72 billion in public debt was not payable. ***
• Good faith negotiations requires the same from all parties –
good faith, particularly when a government debtor is
involved and transparency in finances should be the order
of the day, not the exception.
* Puerto Rico Has No Liquidity Problem, Governor Says,” Bloomberg Business, Nov. 4, 2013.
** “Puerto Rico Improving Under My Watch: Governor,” Bloomberg Business, June 22, 2014.
*** Michael Corkery and Mary Williams Walsh, “Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable,’” New York Times, June 28, 2015.

7. Credibility: Key
Myth Facts
Government has severely cut expenses and can do no more
• Act 66 - 2014: The “Government of the Commonwealth of
Puerto Rico Special Fiscal and Operational Sustainability
Act,” called for (i) cuts in expenditures for goods and
services; and (ii) reductions in payroll expenses for
employees in trust positions, among other things.
• Act No. 66 was supposed to cut expenses, yet PR Office of
Management and Budget revealed that one year following
enactment, 31 government agencies increased trust position
payroll, while 27 other dependencies did not comply with
reductions in purchases of goods and services.*
• During FY 2015 (2014-15), Puerto Rico spent > $13bn
through Government Services Administration (GSA) in
procuring goods and services. 39,000 contracts at the
central-government; 75,000 contracts municipal level (78
municipalities). NOTE: Puerto Rico enacted a 2011 law to
reach efficiencies at the GSA, but the law has not been
used**; most procurement processes are dispersed,
segregated and managed at various levels of government
(state, municipal, public corporations, judicial and
legislative).
* This constitutes a violation of Act 66-2014 and impeded the government from achieving greater cost reductions in at least $91.1 million in operational expenses in 2015; See Limarys Suarez Torres, “Multiple Agencies
Fail to Comply with Cuts,” El Nuevo Día, Sept. 4, 2015; available at elnuevodia.com/noticias/politica/nota/multiplesagenciasincumplenconlosrecortes-2095250.
**GSA reorganization plan was legislated on Nov. 21, 2011, but has not been implemented.

8. Increased Tax
Collection
Permit Reform
Public-Private
Partnerships
Government
Procurement
Reform
PREPA
Revitalization
What?
Poor Collection
Rate
Long, Inefficient
Permitting Process
Multiple assets
available
Procurement
process is
decentralized
PREPA structure
is obsolete -
inefficient
Why?
56% Collection
Rate (SUT)
Encourages and
Facilitates Private
Investment and
new Projects
Rapidly monetize
public assets
FY 2013
purchases exceed
operational budget
Facilitates
investment and
construction, new
and private
How?
Existing
Technology
Executive Orders
P3 Law exists –
implement it
Existing Law –
implement it
Finalizing pending
agreements
Estimated
Value
(MM)
$400 - $600 (1) $500 - $1,000 (2) $2,000 - $4,000 (3) $500 - $1,000 (4) $1,500 - $2,500 (2)
A Credible Path Forward
(1) Additional annual revenue based on an increase in collection rate from 56% to 65% to 70%
(2) Estimated incremental new investments in PR
(3) Estimated based on one time upfront payments and incremental new investments in PR
(4) Annual savings based on 4% to 8% of efficiency gains

9. Conclusion
 Consensual, collaborative and good faith discussions are best for PR.
 Investor confidence, transparency, investment, job growth: the
objectives.
 Broad/coercive debt restructuring is the worst option for residents and
creditors – and run counter to the stated objectives.
 Historical Juncture + Election Cycle: require good faith collaboration
from all parties and given the significance of the times, makes an
appropriately empowered federal oversight board, an imperative.
THANK YOU
Jorge L. San Miguel, Esq.
Ferraiuoli LLC