| Outstanding Insurance Exposure | Outstanding Insurance Exposure The Company primarily sells credit protection contracts in financial guaranty insurance form. Until 2009, the Company also sold credit protection by issuing policies that guaranteed payment obligations under credit derivatives, primarily credit default swaps (CDS). The Company's contracts accounted for as credit derivatives are generally structured such that the circumstances giving rise to the Company’s obligation to make loss payments are similar to those for its financial guaranty insurance contracts. The Company has not entered into any new CDS in order to sell credit protection in the U.S. since the beginning of 2009, when regulatory guidelines were issued that limited the terms under which such protection could be sold. The capital and margin requirements applicable under the Dodd-Frank Wall Street Reform and Consumer Protection Act also contributed to the Company not entering into such new CDS in the U.S. since 2009. The Company has, however, acquired or reinsured portfolios both before and after 2009 that include financial guaranty contracts in credit derivative form. The Company also writes specialty insurance that is consistent with its risk profile and benefits from its underwriting experience. The Company seeks to limit its exposure to losses by underwriting obligations that it views as investment grade at inception, although on occasion it may underwrite new issuances that it views as BIG, typically as part of its loss mitigation strategy for existing troubled exposures. The Company also seeks to acquire portfolios of insurance from financial guarantors that are no longer writing new business by acquiring such companies, providing reinsurance on a portfolio of insurance or reassuming a portfolio of reinsurance it had previously ceded; in such instances, it evaluates the risk characteristics of the target portfolio, which may include some BIG exposures, as a whole in the context of the proposed transaction. The Company diversifies its insured portfolio across asset classes and, in the structured finance portfolio, typically requires subordination or collateral to protect it from loss. Reinsurance may be used in order to reduce net exposure to certain insured transactions. Public finance obligations insured by the Company primarily consist of general obligation bonds supported by the taxing powers of U.S. state or municipal governmental authorities, as well as tax-supported bonds, revenue bonds and other obligations supported by covenants from state or municipal governmental authorities or other municipal obligors to impose and collect fees and charges for public services or specific infrastructure projects. The Company also includes within public finance obligations those obligations backed by the cash flow from leases or other revenues from projects serving substantial public purposes, including utilities, toll roads, healthcare facilities and government office buildings. The Company also includes within public finance similar obligations issued by territorial and non-U.S. sovereign and sub-sovereign issuers and governmental authorities. Structured finance obligations insured by the Company are generally issued by special purpose entities, including VIEs, and backed by pools of assets having an ascertainable cash flow or market value or other specialized financial obligations. Some of these VIEs are consolidated as described in Note 14, Variable Interest Entities. Unless otherwise specified, the outstanding par and debt service amounts presented in this note include outstanding exposures on VIEs whether or not they are consolidated. The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with similar risk profiles to its structured finance exposures written in financial guaranty form. Second-to-pay insured par outstanding represents transactions the Company has insured that are already insured by another financial guaranty insurer and where the Company's obligation to pay under its insurance of such transactions arises only if both the obligor on the underlying insured obligation and the primary financial guaranty insurer default. The Company underwrites such transactions based on the underlying insured obligation without regard to the primary financial guaranty insurer and internally rates the transaction the higher of the rating of the underlying obligation and the rating of the primary financial guarantor. The second-to-pay insured par outstanding as of December 31, 2019 and 2018 was $6.6 billion and $6.7 billion , respectively. The par on second-to-pay exposure where the ratings of the primary financial guaranty insurer and underlying insured transaction that are BIG was $105 million and $111 million as of December 31, 2019 and December 31, 2018 , respectively. Significant Risk Management Activities The Portfolio Risk Management Committee, which includes members of senior management and senior risk and surveillance officers, establishes company-wide credit policy for the Company's direct and assumed business. It implements specific underwriting procedures and limits for the Company and allocates underwriting capacity among the Company's subsidiaries. The Portfolio Risk Management Committee is responsible for enterprise risk management for the overall company and focuses on measuring and managing credit, market and liquidity risk for the overall company. All transactions in new asset classes or new jurisdictions must be approved by this committee. The U.S., U.K., AG Re and AGRO risk management committees conduct an in-depth review of the insured portfolios of the relevant subsidiaries, focusing on varying portions of the portfolio at each meeting. They review and may revise internal ratings assigned to the insured transactions and review sector reports, monthly product line surveillance reports and compliance reports. All transactions in the insured portfolio are assigned internal credit ratings by the relevant underwriting committee at inception, which credit ratings are updated by the relevant risk management committee based on changes in transaction credit quality. As part of the surveillance process, the Company monitors trends and changes in transaction credit quality, and recommends such remedial actions as may be necessary or appropriate. The Company also develops strategies to enforce its contractual rights and remedies and to mitigate its losses, engage in negotiation discussions with transaction participants and, when necessary, manage the Company's litigation proceedings. Surveillance Categories The Company segregates its insured portfolio into investment grade and BIG surveillance categories to facilitate the appropriate allocation of resources to monitoring and loss mitigation efforts and to aid in establishing the appropriate cycle for periodic review for each exposure. BIG exposures include all exposures with internal credit ratings below BBB-. The Company’s internal credit ratings are based on internal assessments of the likelihood of default and loss severity in the event of default. Internal credit ratings are expressed on a ratings scale similar to that used by the rating agencies and are generally reflective of an approach similar to that employed by the rating agencies, except that the Company's internal credit ratings focus on future performance rather than lifetime performance. The Company monitors its insured portfolio and refreshes its internal credit ratings on individual exposures in quarterly, semi-annual or annual cycles based on the Company’s view of the exposure’s credit quality, loss potential, volatility and sector. Ratings on exposures in sectors identified as under the most stress or with the most potential volatility are reviewed every quarter, although the Company may also review a rating in response to developments impacting the credit when a ratings review is not scheduled. For assumed exposures, the Company may use the ceding company’s credit ratings of transactions where it is impractical for it to assign its own rating. Exposures identified as BIG are subjected to further review to determine the probability of a loss. See Note 6, Expected Loss to be Paid, for additional information. Surveillance personnel then assign each BIG transaction to the appropriate BIG surveillance category based upon whether a future loss is expected and whether a claim has been paid. The Company uses a tax-equivalent yield to calculate the present value of projected payments and recoveries and determine whether a future loss is expected in order to assign the appropriate BIG surveillance category to a transaction. For financial statement measurement purposes, the Company uses risk-free rates, which are determined each quarter, to calculate the expected loss. More extensive monitoring and intervention is employed for all BIG surveillance categories, with internal credit ratings reviewed quarterly. For purposes of determining the appropriate surveillance category, the Company expects “future losses” on a transaction when the Company believes there is at least a 50% chance that, on a present value basis, it will in the future pay claims on that transaction that will not be fully reimbursed. The three BIG categories are: • BIG Category 1: Below-investment-grade transactions showing sufficient deterioration to make future losses possible, but for which none are currently expected. • BIG Category 2: Below-investment-grade transactions for which future losses are expected but for which no claims (other than liquidity claims, which are claims that the Company expects to be reimbursed within one year ) have yet been paid. • BIG Category 3: Below-investment-grade transactions for which future losses are expected and on which claims (other than liquidity claims) have been paid. Unless otherwise noted, ratings disclosed herein on the Company's insured portfolio reflect its internal ratings. The Company classifies those portions of risks benefiting from reimbursement obligations collateralized by eligible assets held in trust in acceptable reimbursement structures as the higher of 'AA' or their current internal rating. Financial Guaranty Exposure The Company measures its financial guaranty exposure in terms of (a) gross and net par outstanding and (b) gross and net debt service. The Company typically guarantees the payment of principal and interest when due. Since most of these payments are due in the future, the Company generally uses gross and net par outstanding as a proxy for its financial guaranty exposure. Gross par outstanding generally represents the principal amount of the insured obligation at a point in time. Net par outstanding equals gross par outstanding net of any third-party reinsurance. The Company includes in its par outstanding calculation the impact of any consumer price index inflator to the reporting date as well as, in the case of accreting (zero-coupon) obligations, accretion to the reporting date. The Company purchases securities that it has insured, and for which it has expected losses to be paid, in order to mitigate the economic effect of insured losses (loss mitigation securities). The Company excludes amounts attributable to loss mitigation securities from par and debt service outstanding, which amounts are included in the investment portfolio, because the Company manages such securities as investments and not insurance exposure. As of December 31, 2019 and December 31, 2018 , the Company excluded $1.4 billion and $1.9 billion , respectively, of net par attributable to loss mitigation securities. Gross debt service outstanding represents the sum of all estimated future principal and interest payments on the obligations insured, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any third-party reinsurance. Future debt service payments include the impact of any consumer price index inflator after the reporting date, as well as, in the case of accreting (zero-coupon) obligations, accretion after the reporting date. The Company calculates its debt service outstanding as follows: • for insured obligations that are not supported by homogeneous pools of assets (which category includes most of the Company's public finance transactions), as the total estimated contractual future principal and interest due through maturity, regardless of whether the obligations may be called and regardless of whether, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, the Company believes the obligations will be repaid prior to contractual maturity; • for insured obligations that are supported by homogeneous pools of assets that are contractually permitted to prepay principal (which category includes, for example, residential mortgage-backed securities (RMBS) and CLOs), as total estimated expected future principal and interest due on insured obligations through their respective expected terms, which includes the Company's expectations as to whether the obligations may be called and, in the case of obligations where principal payments are due when an underlying asset makes a principal payment, when the Company expects principal payments to be made prior to contractual maturity. The calculation of debt service requires the use of estimates, which the Company updates periodically, including estimates for the expected remaining term of insured obligations supported by homogeneous pools of assets, updated interest rates for floating and variable rate insured obligations, behavior of consumer price indices for obligations with consumer price index inflators, foreign exchange rates and other assumptions based on the characteristics of each insured obligation. The anticipated sunset of London Interbank Offered Rate (LIBOR) at the end of 2021 has introduced another variable into the Company's calculation of future debt service. See the Risk Factor captioned “The Company may be adversely impacted by the transition from LIBOR as a reference rate” under Operational Risks in Part 1, Item 1A, Risk Factors. Debt service is a measure of the estimated maximum potential exposure to insured obligations before considering the Company’s various legal rights to the underlying collateral and other remedies available to it under its financial guaranty contract. Actual debt service may differ from estimated debt service due to refundings, terminations, negotiated restructurings, prepayments, changes in interest rates on variable rate insured obligations, consumer price index behavior differing from that projected, changes in foreign exchange rates on non-U.S. denominated insured obligations and other factors. Financial Guaranty Portfolio Debt Service Outstanding Gross Debt Service Outstanding Net Debt Service Outstanding As of December 31, 2019 As of December 31, 2018 As of December 31, 2019 As of December 31, 2018 (in millions) Public finance $ 363,497 $ 361,511 $ 362,361 $ 358,438 Structured finance 12,279 13,569 11,769 13,148 Total financial guaranty $ 375,776 $ 375,080 $ 374,130 $ 371,586 Financial Guaranty Portfolio by Internal Rating As of December 31, 2019 Public Finance Public Finance Non-U.S. Structured Finance U.S Structured Finance Non-U.S Total Rating Net Par % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % (dollars in millions) AAA $ 381 0.2 % $ 2,541 5.0 % $ 1,258 13.5 % $ 181 23.8 % $ 4,361 1.8 % AA 19,847 11.3 5,142 10.0 4,010 43.1 38 5.0 29,037 12.3 A 94,488 53.9 15,627 30.4 1,030 11.1 184 24.2 111,329 47.0 BBB 55,000 31.3 27,051 52.8 1,206 13.0 317 41.6 83,574 35.3 BIG 5,771 3.3 898 1.8 1,796 19.3 41 5.4 8,506 3.6 Total net par outstanding $ 175,487 100.0 % $ 51,259 100.0 % $ 9,300 100.0 % $ 761 100.0 % $ 236,807 100.0 % Financial Guaranty Portfolio by Internal Rating As of December 31, 2018 Public Finance U.S. Public Finance Non-U.S. Structured Finance U.S Structured Finance Non-U.S Total Rating Category Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % Net Par Outstanding % (dollars in millions) AAA $ 413 0.2 % $ 2,399 5.4 % $ 1,533 15.4 % $ 273 22.9 % $ 4,618 1.9 % AA 21,646 11.6 1,711 3.9 3,599 36.2 65 5.4 27,021 11.2 A 105,180 56.4 13,013 29.5 1,016 10.2 206 17.3 119,415 49.4 BBB 52,935 28.4 25,939 58.8 1,164 11.7 550 46.1 80,588 33.3 BIG 6,388 3.4 1,041 2.4 2,632 26.5 99 8.3 10,160 4.2 Total net par outstanding $ 186,562 100.0 % $ 44,103 100.0 % $ 9,944 100.0 % $ 1,193 100.0 % $ 241,802 100.0 % The following tables present gross and net par outstanding for the financial guaranty portfolio. Financial Guaranty Portfolio Gross Par Outstanding As of As of (in millions) U.S. public finance $ 176,047 $ 187,919 Non-U.S. public finance 51,538 44,714 U.S. structured finance 9,800 10,352 Non-U.S. structured finance 771 1,206 Total gross par outstanding $ 238,156 $ 244,191 Financial Guaranty Portfolio Net Par Outstanding by Sector Sector (1) As of As of (in millions) Public finance: U.S.: General obligation $ 73,467 $ 78,800 Tax backed 37,047 40,616 Municipal utilities 26,195 28,402 Transportation 16,209 15,197 Healthcare 7,148 6,750 Higher education 5,916 6,643 Infrastructure finance 5,429 5,489 Housing revenue 1,321 1,435 Investor-owned utilities 655 846 Renewable energy 210 215 Other public finance 1,890 2,169 Total public finance—U.S. 175,487 186,562 Non-U.S.: Regulated utilities 18,995 18,124 Infrastructure finance 17,952 17,166 Sovereign and sub-sovereign 11,341 6,094 Renewable energy 1,555 1,346 Pooled infrastructure 1,416 1,373 Total public finance—non-U.S. 51,259 44,103 Total public finance 226,746 230,665 Structured finance: U.S.: RMBS 3,546 4,270 Life insurance transactions 1,776 1,435 Pooled corporate obligations 1,401 1,215 Financial products 1,019 1,094 Consumer receivables 962 1,255 Other structured finance 596 675 Total structured finance—U.S. 9,300 9,944 Non-U.S.: RMBS 427 576 Pooled corporate obligations 55 126 Other structured finance 279 491 Total structured finance—non-U.S. 761 1,193 Total structured finance 10,061 11,137 Total net par outstanding $ 236,807 $ 241,802 _____________________ (1) Prior period has been presented on a basis consistent with current period sector classifications. In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $301 million of gross par for public finance and $610 million of gross par of structured finance as of December 31, 2019 . These commitments are contingent on the satisfaction of all conditions set forth in them and may expire unused or be canceled at the counterparty’s request. Therefore, the total commitment amount does not necessarily reflect actual future guaranteed amounts. Actual maturities of insured obligations could differ from contractual maturities because borrowers have the right to call or prepay certain obligations. The expected maturities of structured finance obligations are, in general, considerably shorter than the contractual maturities for such obligations. Financial Guaranty Portfolio Expected Amortization of Net Par Outstanding As of December 31, 2019 Public Finance Structured Finance Total (in millions) 0 to 5 years $ 55,219 $ 4,161 $ 59,380 5 to 10 years 48,500 1,852 50,352 10 to 15 years 42,901 1,917 44,818 15 to 20 years 33,820 1,698 35,518 20 years and above 46,306 433 46,739 Total net par outstanding $ 226,746 $ 10,061 $ 236,807 Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2019 BIG Net Par Outstanding Net Par BIG 1 BIG 2 BIG 3 Total BIG Outstanding (in millions) Public finance: U.S. public finance $ 1,582 $ 430 $ 3,759 $ 5,771 $ 175,487 Non-U.S. public finance 854 — 44 898 51,259 Public finance 2,436 430 3,803 6,669 226,746 Structured finance: U.S. RMBS 162 74 1,382 1,618 3,546 Life insurance transactions — — 40 40 1,771 Other structured finance 69 62 48 179 4,744 Structured finance 231 136 1,470 1,837 10,061 Total $ 2,667 $ 566 $ 5,273 $ 8,506 $ 236,807 Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2018 BIG Net Par Outstanding Net Par BIG 1 BIG 2 BIG 3 Total BIG Outstanding (in millions) Public finance: U.S. public finance $ 1,767 $ 399 $ 4,222 $ 6,388 $ 186,562 Non-U.S. public finance 796 245 — 1,041 44,103 Public finance 2,563 644 4,222 7,429 230,665 Structured finance: U.S. RMBS 368 214 1,805 2,387 4,270 Life insurance transactions — — 85 85 1,184 Other structured finance 127 79 53 259 5,683 Structured finance 495 293 1,943 2,731 11,137 Total $ 3,058 $ 937 $ 6,165 $ 10,160 $ 241,802 Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2019 Net Par Outstanding Number of Risks(2) Description Financial Guaranty Insurance(1) Credit Derivative Total Financial Guaranty Insurance(1) Credit Derivative Total (dollars in millions) BIG: Category 1 $ 2,600 $ 67 $ 2,667 121 6 127 Category 2 561 5 566 24 1 25 Category 3 5,216 57 5,273 131 7 138 Total BIG $ 8,377 $ 129 $ 8,506 276 14 290 Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2018 Net Par Outstanding Number of Risks(2) Description Financial Guaranty Insurance(1) Credit Derivative Total Financial Guaranty Insurance(1) Credit Derivative Total (dollars in millions) BIG: Category 1 $ 2,981 $ 77 $ 3,058 128 6 134 Category 2 932 5 937 39 1 40 Category 3 6,090 75 6,165 145 8 153 Total BIG $ 10,003 $ 157 $ 10,160 312 15 327 _____________________ (1) Includes VIEs. (2) A risk represents the aggregate of the financial guaranty policies that share the same revenue source for purposes of making debt service payments. The Company seeks to maintain a diversified portfolio of insured obligations designed to spread its risk across a number of geographic areas. Financial Guaranty Portfolio Geographic Distribution of Net Par Outstanding As of December 31, 2019 Number of Risks Net Par Outstanding Percent of Total Net Par Outstanding (dollars in millions) U.S.: U.S. Public finance: California 1,318 $ 33,368 14.1 % Pennsylvania 665 15,895 6.7 Texas 1,090 14,860 6.3 New York 749 14,682 6.2 Illinois 602 13,977 5.9 New Jersey 337 10,504 4.4 Florida 266 7,107 3.0 Michigan 305 5,345 2.3 Puerto Rico 17 4,270 1.8 Louisiana 162 4,167 1.8 Other 2,529 51,312 21.7 Total U.S. public finance 8,040 175,487 74.2 U.S. Structured finance (multiple states) 450 9,300 3.9 Total U.S. 8,490 184,787 78.1 Non-U.S.: United Kingdom 288 38,450 16.2 France 7 3,130 1.3 Canada 8 2,495 1.1 Australia 11 2,112 0.9 Austria 3 1,250 0.5 Other 42 4,583 1.9 Total non-U.S. 359 52,020 21.9 Total 8,849 $ 236,807 100.0 % Exposure to Puerto Rico The Company had insured exposure to general obligation bonds of the Commonwealth of Puerto Rico (Puerto Rico or the Commonwealth) and various obligations of its related authorities and public corporations aggregating $4.3 billion net par as of December 31, 2019 , all of which was rated BIG. Beginning on January 1, 2016, a number of Puerto Rico exposures have defaulted on bond payments, and the Company has now paid claims on all of its Puerto Rico exposures except for Puerto Rico Aqueduct and Sewer Authority (PRASA), Municipal Finance Agency (MFA) and University of Puerto Rico (U of PR). On November 30, 2015 and December 8, 2015, the then governor of Puerto Rico issued executive orders (Clawback Orders) directing the Puerto Rico Department of Treasury and the Puerto Rico Tourism Company to "claw back" certain taxes pledged to secure the payment of bonds issued by the Puerto Rico Highways and Transportation Authority (PRHTA), Puerto Rico Infrastructure Financing Authority (PRIFA), and Puerto Rico Convention Center District Authority (PRCCDA). The Puerto Rico exposures insured by the Company subject to clawback are shown in the table “Puerto Rico Net Par Outstanding.” The fiscal and political issues in Puerto Rico have been exacerbated by natural disasters. On September 20, 2017, Hurricane Maria made landfall in Puerto Rico as a Category 4 hurricane on the Saffir-Simpson scale, causing loss of life and widespread destruction. More recently, beginning on December 28, 2019, and progressing into early 2020, Puerto Rico has been struck by a swarm of earthquakes, including at least 11 that were of magnitude 5 or greater based on the the Richter magnitude scale. While not nearly as deadly or destructive as Hurricane Maria, the earthquakes have damaged buildings and infrastructure, including the power grid. On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA established a seven-member financial oversight board (Oversight Board) with authority to require that balanced budgets and fiscal plans be adopted and implemented by Puerto Rico. Title III of PROMESA provides for a process analogous to a voluntary bankruptcy process under chapter 9 of the United States Bankruptcy Code. The Company believes that a number of the actions taken by the Commonwealth, the Oversight Board and others with respect to obligations the Company insures are illegal or unconstitutional or both, and has taken legal action, and may take additional legal action in the future, to enforce its rights with respect to these matters. In addition, the Commonwealth, the Oversight Board and others have taken legal action naming the Company as a party. See “Puerto Rico Litigation” below. The Company also participates in mediation and negotiations relating to its Puerto Rico exposure. The final form and timing of responses to Puerto Rico’s financial distress and the devastation of Hurricane Maria eventually taken by the federal government or implemented under the auspices of PROMESA and the Oversight Board or otherwise, and the final impact on the Company, after resolution of legal challenges, of any such responses on obligations insured by the Company, are uncertain. The impact of developments relating to Puerto Rico during any quarter or year could be material to the Company's results of operations in that particular quarter or year. The Company groups its Puerto Rico exposure into three categories: • Constitutionally Guaranteed. The Company includes in this category public debt benefiting from Article VI of the Constitution of the Commonwealth, which expressly provides that interest and principal payments on the public debt are to be paid before other disbursements are made. • Public Corporations – Certain Revenues Potentially Subject to Clawback. The Company includes in this category the debt of public corporations for which applicable law permits the Commonwealth to claw back, subject to certain conditions and for the payment of public debt, at least a portion of the revenues supporting the bonds the Company insures. As a constitutional condition to clawback, available Commonwealth revenues for any fiscal year must be insufficient to pay Commonwealth debt service before the payment of any appropriations for that year. The Company believes that this condition has not been satisfied to date, and accordingly that the Commonwealth has not to date been entitled to claw back revenues supporting debt insured by the Company. • Other Public Corporations. The Company includes in this category the debt of public corporations that are supported by revenues it does not believe are subject to clawback. Constitutionally Guaranteed General Obligation. As of December 31, 2019 , the Company had $1,253 million insured net par outstanding of the general obligations of Puerto Rico, which are supported by the good faith, credit and taxing power of the Commonwealth. Despite the requirements of Article VI of its Constitution, the Commonwealth defaulted on the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since that date. The Oversight Board has filed a petition under Title III of PROMESA with respect to the Commonwealth. On May 9, 2019, the Oversight Board certified a revised fiscal plan for the Commonwealth. The revised certified Commonwealth fiscal plan indicates an expected primary budget surplus, if fiscal plan reforms are enacted, of $13.7 billion that would be available for debt service over the six -year forecast period ending 2024. The Company believes the available surplus set forth in the Oversight Board's revised certified fiscal plan (which assumes certain fiscal reforms are implemented by the Commonwealth) should be sufficient to cover contractual debt service of Commonwealth general obligation issuances and of authorities and public corporations directly implicated by the Commonwealth’s general fund during the forecast period. However, the revised certified Commonwealth fiscal plan indicates a net cumulative primary budget deficit through 2049, and there can be no assurance that the fiscal reforms will be enacted or, if they are, that the forecasted primary budget surplus will occur or, if it does, that such funds will be used to cover contractual debt service. On February 9, 2020, the Oversight Board announced it had entered into an amended general obligation Plan Support Agreement (Amended GO PSA) with certain general obligation (GO) and Puerto Rico Public Buildings Authority (PBA) bondholders representing approximately $8 billion of the aggregate amount of general obligation and PBA bond claims. The Amended GO PSA purports to provide a framework to address approximately $35 billion of Commonwealth debt (including PBA debt) and unsecured claims. The Company is not a party to that agreement and does not support it. The Amended GO PSA provides for different recoveries based on the bonds’ vintage issuance date, with GO and PBA bonds issued before 2011(Vintage) receiving higher recoveries than GO and PBA bonds issued in 2011 and thereafter (except that, for purposes of the Amended GO PSA, Series 2011A GO bonds would be treated as Vintage bonds). The recoveries for the GO bonds, by vintage issuance date, are set forth in the table included below. The differentiated recovery scheme provided under the Amended GO PSA is purportedly based on the Oversight Board’s attempt to invalidate the non-Vintage GO and PBA bonds (see “Puerto Rico Litigation” below). Under the Amended GO PSA, GO and PBA bondholders generally would receive newly issued Commonwealth GO bonds, Puerto Rico Sales Tax Financing Corporation (COFINA) junior lien bonds and cash equal to the amounts set out below, expressed as a percent of their outstanding pre-petition claims (which excludes post-petition accrued interest), based on the vintage issuance date of the bonds they hold. In all cases, holders of GO/PBA bonds supporting the Amended GO PSA are also entitled to certain fees. General Obligation Bonds Assured Guaranty Assured Guaranty Assured Guaranty Base Recovery as a % of Pre-Petition Claims (in millions) (percent) Vintage GO $ 669 $ 383 $ 147 74.9 % 2011 GO (Series D, E and PIB) 5 6 1 73.8 2011 GO (Series C) 210 — 42 70.4 2012 GO 369 — 63 69.9 2014 GO — — — 65.4 On September 27, 2019, the Oversight Board filed with the Title III court a Plan of Adjustment (POA) to restructure approximately $35 billion of debt (including the GO bonds) and other claims against the government of Puerto Rico and certain entities and $50 billion in pension obligations. The POA is expected to be amended to incorporate the terms related to the GO bonds proposed under the Amended GO PSA. The Company believes the POA, as currently constituted, does not comply with the laws and constitution of Puerto Rico and the provisions of PROMESA and does not satisfy the statutory requirements for confirmation of a plan of adjustment under Title III of PROMESA. PBA. As of December 31, 2019 , the Company had $140 million insured net par outstanding of PBA bonds, which are supported by a pledge of the rents due under leases of government facilities to departments, agencies, instrumentalities and municipalities of the Commonwealth, and that benefit from a Commonwealth guaranty supported by a pledge of the Commonwealth’s good faith, credit and taxing power. Despite the requirements of Article VI of its Constitution, the PBA defaulted on most of the debt service payment due on July 1, 2016, and the Company has been making claim payments on these bonds since then. On September 27, 2019, the Oversight Board filed a petition under Title III of PROMESA with respect to the PBA to allow the restructuring of the PBA claims through the POA. Under the Amended GO PSA (which does not include the Company as a party and which the Company does not support), PBA bondholders generally would receive newly issued Commonwealth GO bonds, CO |
