| Outstanding Insurance Exposure | Outstanding Insurance Exposure The Company sells credit protection primarily 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 and reinsurance 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 10, Variable Interest Entities. Unless otherwise specified, the outstanding par and principal and interest (debt service) amounts presented in this note include outstanding exposures on these VIEs whether or not they are consolidated. 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. The Company also provides specialty insurance and reinsurance on transactions without special purpose entities but with risk profiles similar to those of its structured finance exposures written in financial guaranty form. Significant Risk Management Activities The Portfolio Risk Management Committee, which includes members of senior management and senior risk and surveillance officers, is responsible for enterprise risk management for the overall company and focuses on measuring and managing credit, market and liquidity risk for the Company. This committee 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. All transactions in new asset classes or new jurisdictions must be approved by this committee. The U.S., AG Re and AGRO risk management committees and AGUK and AGE surveillance 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 or surveillance 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 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. Unless otherwise noted, ratings disclosed herein on the Company's insured portfolio reflect its internal ratings. 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 5, Expected Loss to be Paid (Recovered), 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 are 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. Impact of COVID-19 Pandemic The novel coronavirus that emerged in Wuhan, China in late 2019 and which causes the coronavirus disease known as COVID-19 was declared a pandemic by the World Health Organization in early 2020 and continued to spread throughout the world over the course of 2020. By late 2020 and early 2021 several vaccines had been developed and were being approved by some governments, and distribution of vaccines in some nations has begun. The emergence of COVID-19 and reactions to it, including various closures and capacity and travel restrictions, have had a profound effect on the global economy and financial markets. While the COVID-19 pandemic has been impacting the global economy and the Company for nearly a year now, its ultimate size, depth, course and duration, and the effectiveness and acceptance of vaccines for it, remain unknown, and the governmental and private responses to the pandemic continue to evolve. Consequently, and due to the nature of the Company's business, all of the direct and indirect consequences of COVID-19 on the Company are not yet fully known to the Company, and still may not emerge for some time. For information about how the COVID-19 pandemic has impacted the Company's loss projections, see Note 5, Expected Loss to be Paid (Recovered). The Company's Surveillance department has established supplemental periodic surveillance procedures to monitor the impact on its insured portfolio of COVID-19 and governmental and private responses to COVID-19, with emphasis on state and local governments and entities that were already experiencing significant budget deficits and pension funding and revenue shortfalls, as well as obligations supported by revenue streams most impacted by various closures and capacity and travel restrictions or an economic downturn. In addition, the Company's surveillance department has been in contact with certain of its credits that it believes may be more at risk from COVID-19 and governmental and private responses to COVID-19. The Company's internal ratings and loss projections reflect this augmented surveillance activity. Through February 25, 2021, the Company has paid only relatively small first-time insurance claims it believes are due at least in part to credit stress arising specifically from COVID-19. The Company currently projects full reimbursement of these claims. 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 debt service 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 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 both December 31, 2020 and December 31, 2019, the Company excluded $1.4 billion of net par attributable to loss mitigation securities. Gross debt service outstanding represents the sum of all estimated future debt service payments on the obligations insured, on an undiscounted basis. Net debt service outstanding equals gross debt service outstanding net of any 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 debt service 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; and • 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 the total estimated expected future debt service 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 LIBOR after June 30, 2023 has introduced another variable into the Company's calculation of future debt service. 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. dollar denominated insured obligations and other factors. Financial Guaranty Portfolio Debt Service Outstanding Gross Debt Service Net Debt Service As of As of December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 (in millions) Public finance $ 356,078 $ 363,497 $ 355,649 $ 362,361 Structured finance 10,614 12,279 10,584 11,769 Total financial guaranty $ 366,692 $ 375,776 $ 366,233 $ 374,130 Financial Guaranty Portfolio by Internal Rating As of December 31, 2020 Public Finance Public Finance Structured Finance Structured Finance Total Rating Net Par % Net Par % Net Par % Net Par % Net Par % (dollars in millions) AAA $ 340 0.2 % $ 2,617 4.9 % $ 1,146 12.8 % $ 152 26.4 % $ 4,255 1.8 % AA 16,742 9.7 4,690 8.8 4,324 48.3 35 6.0 25,791 11.0 A 90,914 53.0 11,646 22.0 1,006 11.3 137 23.8 103,703 44.3 BBB 58,162 33.9 33,180 62.6 835 9.3 252 43.8 92,429 39.5 BIG 5,439 3.2 895 1.7 1,641 18.3 — — 7,975 3.4 Total net par outstanding $ 171,597 100.0 % $ 53,028 100.0 % $ 8,952 100.0 % $ 576 100.0 % $ 234,153 100.0 % Financial Guaranty Portfolio by Internal Rating As of December 31, 2019 Public Finance Public Finance Structured Finance Structured Finance Total Rating Net Par % Net Par % Net Par % Net Par % Net Par % (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 % The following tables present gross and net par outstanding for the financial guaranty portfolio. Financial Guaranty Portfolio Gross Par Outstanding As of December 31, 2020 December 31, 2019 (in millions) U.S. public finance $ 171,838 $ 176,047 Non-U.S. public finance 53,175 51,538 U.S. structured finance 8,977 9,800 Non-U.S. structured finance 581 771 Total gross par outstanding $ 234,571 $ 238,156 Financial Guaranty Portfolio Net Par Outstanding by Sector As of Sector December 31, 2020 December 31, 2019 (in millions) Public finance: U.S.: General obligation $ 72,268 $ 73,467 Tax backed 34,800 37,047 Municipal utilities 25,275 26,195 Transportation 15,179 16,209 Healthcare 8,691 7,148 Higher education 6,127 5,916 Infrastructure finance 5,843 5,429 Housing revenue 1,149 1,321 Investor-owned utilities 644 655 Renewable energy 204 210 Other public finance 1,417 1,890 Total public finance—U.S. 171,597 175,487 Non-U.S.: Regulated utilities 19,370 18,995 Infrastructure finance 17,819 17,952 Sovereign and sub-sovereign 11,682 11,341 Renewable energy 2,708 1,555 Pooled infrastructure 1,449 1,416 Total public finance—non-U.S. 53,028 51,259 Total public finance 224,625 226,746 Structured finance: U.S.: RMBS 2,990 3,546 Life insurance transactions 2,581 1,776 Pooled corporate obligations 1,193 1,401 Financial products 820 1,019 Consumer receivables 768 962 Other structured finance 600 596 Total structured finance—U.S. 8,952 9,300 Non-U.S.: RMBS 357 427 Pooled corporate obligations — 55 Other structured finance 219 279 Total structured finance—non-U.S. 576 761 Total structured finance 9,528 10,061 Total net par outstanding $ 234,153 $ 236,807 In addition to amounts shown in the table above, the Company had outstanding commitments to provide guaranties of $422 million of public finance gross par and $619 million of structured finance gross par as of December 31, 2020. 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, 2020 Public Finance Structured Finance Total (in millions) 0 to 5 years $ 53,956 $ 3,542 $ 57,498 5 to 10 years 46,673 2,372 49,045 10 to 15 years 42,582 1,729 44,311 15 to 20 years 32,535 1,600 34,135 20 years and above 48,879 285 49,164 Total net par outstanding $ 224,625 $ 9,528 $ 234,153 Financial Guaranty Portfolio Components of BIG Net Par Outstanding As of December 31, 2020 BIG Net Par Outstanding Net Par BIG 1 BIG 2 BIG 3 Total BIG Outstanding (in millions) Public finance: U.S. public finance $ 1,777 $ 57 $ 3,605 $ 5,439 $ 171,597 Non-U.S. public finance 846 — 49 895 53,028 Public finance 2,623 57 3,654 6,334 224,625 Structured finance: U.S. RMBS 200 26 1,254 1,480 2,990 Other structured finance 28 51 82 161 6,538 Structured finance 228 77 1,336 1,641 9,528 Total $ 2,851 $ 134 $ 4,990 $ 7,975 $ 234,153 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 Other structured finance 69 62 88 219 6,515 Structured finance 231 136 1,470 1,837 10,061 Total $ 2,667 $ 566 $ 5,273 $ 8,506 $ 236,807 Financial Guaranty Portfolio BIG Net Par Outstanding and Number of Risks As of December 31, 2020 Net Par Outstanding Number of Risks(2) Description Financial Credit Total Financial Credit Total (dollars in millions) BIG: Category 1 $ 2,781 $ 70 $ 2,851 125 6 131 Category 2 130 4 134 19 1 20 Category 3 4,944 46 4,990 126 7 133 Total BIG $ 7,855 $ 120 $ 7,975 270 14 284 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 Credit Total Financial Credit 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 _____________________ (1) Includes FG 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, 2020 Number of Risks Net Par Outstanding Percent of Total Net Par Outstanding (dollars in millions) U.S.: U.S. Public finance: California 1,281 $ 34,036 14.6 % Pennsylvania 616 15,464 6.6 New York 672 15,461 6.6 Texas 1,040 15,054 6.5 Illinois 552 13,397 5.7 New Jersey 311 10,179 4.3 Florida 242 6,887 2.9 Michigan 284 5,264 2.2 Louisiana 154 4,820 2.1 Puerto Rico 17 3,725 1.6 Other 2,289 47,310 20.2 Total U.S. public finance 7,458 171,597 73.3 U.S. Structured finance (multiple states) 406 8,952 3.8 Total U.S. 7,864 180,549 77.1 Non-U.S.: United Kingdom 285 39,125 16.7 France 7 3,159 1.4 Canada 8 2,309 1.0 Australia 10 1,956 0.8 Spain 7 1,814 0.8 Other 39 5,241 2.2 Total non-U.S. 356 53,604 22.9 Total 8,220 $ 234,153 100.0 % 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 $3.7 billion net par as of December 31, 2020, 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.” 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 (Bankruptcy Code). With the terms of the original seven members of the Oversight Board having expired, the Oversight Board was reconstituted in late 2020 and early 2021 with a number of new members as well as several incumbents. 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 COVID-19 pandemic and evolving governmental and private responses to the pandemic are impacting both Puerto Rico itself and the process of resolving the payment defaults of the Commonwealth and some of its related authorities and public corporations, including delaying related litigation, the various Title III proceedings, and other legal proceedings. The final form and timing of responses to Puerto Rico’s financial distress, the devastation of Hurricane Maria and the COVID-19 pandemic and evolving governmental and private responses to the pandemic, 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 and shareholders' equity. 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, 2020, the Company had $1,112 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 27, 2020, the Oversight Board certified a revised fiscal plan for the Commonwealth. The revised certified Commonwealth fiscal plan contemplates a reduction in financial resources available for debt service as a result of efforts to contain, and the impact on the economy from, the COVID-19 pandemic. That revised fiscal plan also contemplates a postponement of reforms for the Commonwealth. The Company continues to disagree with the Oversight Board's view of available resources. On February 23, 2021 the Oversight Board announced it had entered into a revised general obligation Plan Support Agreement (GO PSA) with certain general obligation (GO) and Puerto Rico Public Buildings Authority (PBA) bondholders and insurers representing approximately $11.7 billion, approximately 62% of the aggregate amount of general obligation and PBA bond claims. In general, the GO PSA provides for lower Commonwealth debt service payments per annum relative to the Plan Support Agreement signed in February 2020 (February 2020 PSA), extends the tenor of new recovery bonds, increases the amount of cash distributed to creditors, and provides additional consideration in the form of a contingent value instrument. This contingent value instrument is intended to provide creditors with additional returns tied to outperformance of the Puerto Rico Sales and Use tax against May of 2020 certified fiscal plan projections. AGM and AGC each are a conditional support party to the GO PSA with an absolute withdrawal right that extends until March 31, 2021. While conditional support parties, AGM and AGC intend to negotiate an acceptable treatment of their PRHTA, PRCCDA and PRIFA revenue bond claims against the Commonwealth and its associated instrumentalities. The GO PSA purports to provide a framework to address approximately $18.8 billion of Commonwealth debt (including PBA debt), and 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 GO PSA, Series 2011A GO bonds would be treated as Vintage bonds). The differentiated recovery scheme provided under the 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). On February 28, 2020, the Oversight Board filed with the Title III court an Amended Joint Plan of Adjustment of the Commonwealth (Amended 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. It is anticipated that the Oversight Board will file in mid-March 2021 a further amended Commonwealth plan of adjustment that includes the terms of the settlement relating to the GO bonds embodied in the GO PSA. The Company believes the Amended POA, as filed on February 28, 2020, did 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, 2020, the Company had $134 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 the Commonwealth's 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 s |
