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Government Development Bank for Puerto Rico New Fiscal Plan

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Government Development Bank for Puerto Rico New Fiscal Plan Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft Government Development Bank for Puerto Rico New Fiscal Plan San Juan, Puerto Rico April 12, 2018 GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft Disclaimer The Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”), the Government Development Bank for Puerto Rico (“GDB”), the Government of Puerto Rico (the “Government”), and each of their respective officers, directors, employees, agents, attorneys, advisors, members, partners or affiliates (collectively, with AAFAF and the Government, the “Parties”) make no representation or warranty, express or implied, to any third party with respect to the information contained herein and all Parties expressly disclaim any such representations or warranties. The Parties do not owe or accept any duty or responsibility to any reader or recipient of this presentation, whether in contract or tort, and shall not be liable for or in respect of any loss, damage (including without limitation consequential damages or lost profits) or expense of whatsoever nature of such third party that may be caused by, or alleged to be caused by, the use of this presentation or that is otherwise consequent upon the gaining of access to this document by such third party. This document does not constitute an audit conducted in accordance with generally accepted auditing standards, an examination of internal controls or other attestation or review services in accordance with standards established by the American Institute of Certified Public Accountants or any other organization. Accordingly, the Parties do not express an opinion or any other form of assurance on the financial statements or any financial or other information or the internal controls of the Government and the information contained herein. Any statements and assumptions contained in this document, whether forward‐looking or historical, are not guarantees of future performance and involve certain risks, uncertainties, estimates and other assumptions made in this document. The economic and financial condition of the Government and its instrumentalities is affected by various financial, social, economic, environmental and political factors. These factors can be very complex, may vary from one fiscal year to the next and are frequently the result of actions taken or not taken, not only by the Government and its agencies and instrumentalities, but also by entities such as the government of the United States. Because of the uncertainty and unpredictability of these factors, their impact cannot be included in the assumptions contained in this document. Future events and actual results may differ materially from any estimates, projections, or statements contained herein. Nothing in this document should be considered as an express or implied commitment to do or take, or to refrain from taking, any action by AAFAF, the Government, or any government instrumentality in the Government or an admission of any fact or future event. Nothing in this document shall be considered a solicitation, recommendation or advice to any person to participate, pursue or support a particular course of action or transaction, to purchase or sell any security, or to make any investment decision. By accepting this document, the recipient shall be deemed to have acknowledged and agreed to the terms of these limitations. This document may contain capitalized terms that are not defined herein, or may contain terms that are discussed in other documents or that are commonly understood. You should make no assumptions about the meaning of capitalized terms that are not defined, and you should consult with advisors of AAFAF should clarification be required. GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO 2 Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft Table of Contents I. Background and Context II. Title VI Transaction Overview III. New Fiscal Plan IV. Current Balance Sheet Information (unaudited) GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO 3 Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft I. Background and Context GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft Background and Context Overview • GDB was originally created to aid the Government in the performance of its fiscal duties and to more effectively carry out its responsibility to develop the economy of Puerto Rico. • Over time, GDB evolved and its role expanded to include, among other services, acting as a financing backstop for fiscal losses of the Government, its Agencies, Municipalities, and Public Corporations. • GDB was also called upon to provide financial support during periods of financial distress, leveraging its strong credit rating, reputation, access to the capital markets and its constructive relationship with the investment community to provide financial support to troubled public entities and assist them in regaining financial stability. • Due to the expansion of services over time and a confluence of other decisionsandactions,inrecentyearsGDBfounditself immersed in a fiscal and viability crisis. • The loss of its investment grade rating in 2014, the resulting loss of market access, and the decision by the Government to default on appropriation debt in 2015, left GDB with significant non‐performing assets, limited available liquidity, and the inability to repay its debts as they came due. • With the fiscal challenges affecting GDB, AAFAF was created to assume the roles of fiscal agent, financial advisor, and disclosure agent of the Government. • Given the reduced services that GDB was providing since 2016, an important questionwasaskedandanswered–CouldGDB be restructured, become a viable going concern, and reinstate its past activities? A careful review of information and circumstances in early 2017, and the exclusion of appropriations to GDB in the Government’s fiscal plan, made it clear there was no clear path to achieve long term viability for GDB.(1) • Early in 2017, GDB’s leadership concluded that an orderly wind‐down of its operations and consensual negotiations with its creditors would be the optimal path to mitigate the impact to its stakeholders (municipalities, depositors, and other creditors, etc.). (1) Analysis and assessment based on unaudited financial information. GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO 5 Confidential / Prepared for Governmental Policy Deliberation / Subject to Common Interest Agreement / Working Draft Background and Context Overview • GDB’s operational wind‐down is scheduled to be completed by March 23, 2018, with all fundamental operations having ceased or transferred to other entities (i.e. AAFAF, EDB, etc.) and workforce restructuring completed with minimal “at will” staffing needed to conclude legal and operational matters through FY2019. • GDB, as a legally responsible entity is anticipated to resolve (i) outstanding legal matters and claims that exist or may be asserted against GDB and (ii) certain public entity loans that will remain at GDB and for which GDB shall have a contractual duty to the Recovery Authority to use reasonable efforts to maximize proceeds and assign such proceeds, if any, to the Recovery Authority. • The Restructuring Support Agreement (“RSA”), as amended, between AAFAF, GDB and a significant portion of GDB’s financial creditors was originally announced on May 15, 2017 consists of: – The RSA contemplates that GDB’s assets will be assigned to two separate entities: GDB Recovery Authority for the benefit of GDB’s financial creditors consisting of bondholders, municipal depositors, and non‐government entity depositors (the “Recovery Authority”) and a Public Entity Trust (“PET”) for the benefit of other depositors that are net creditors of GDB (“Government Entity Depositors”). – GDB will continue to exist as a legal entity with operational activity limited to resolving certain outstanding legal matters and managing the resolution strategy of certain public entity loans the proceeds of which, if any, will be assigned to the Recovery Authority, pursuant to the terms of the RSA. – The RSA (as the same is expected to be amended as herein after discussed) is expected to be consummated pursuant to a consensual restructuring of GDB’s long‐term obligations through a Title VI Qualifying Modification. – Once approved by the requisite financial creditors of GDB, the FOMB and the US District Court (Puerto Rico), the Restructuring (as defined in the RSA) will provide GDB’s stakeholders a recovery based on the performance of the underlying assets. • AAFAF, GDB and a significant portion of GDB’s financial creditors have agreed, in principle, to amend the RSA to reflect a simplified structure with one security offered to Participating Bond Claims (as defined in the RSA) and applying off all municipal deposits against corresponding municipal loans, where applicable. • GDB’s New Fiscal Plan (“Plan”) incorporates the RSA terms and legislative framework established pursuant to the GDB Restructuring Act No. 109‐2017, as the same is to be amended to reflect the transaction as described herein (the “GDB Restructuring Act”), resolving the mechanism by which projected cash flow will be allocated to
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