Restructuring Puerto Rico’s Public Debts
May 10, 2021
Puerto Rico’s public debts totaled just over $70 bil ion when the Puerto Rico Oversight,
Management, and Economic Stability Act (P.L. 114-187; PROMESA) became law on
D. Andrew Austin
June 30, 2016. Most of those debts are now in the midst of perhaps the largest
Analyst in Economic Policy
restructuring of public debt in U.S. history. By way of comparison, the City of Detroit

had about $18 bil ion in debt when it entered bankruptcy in 2013. Puerto Rico’s debt
restructuring could also become one of the most expensive ever, with professional fees

projected to exceed $1 bil ion. The precarity of Puerto Rico’s fiscal troubles became widely known in mid-2013.
The restructuring of Puerto Rico’s public debts could inform future federal responses to fiscal strains faced by
some state and local governments.
PROMESA created two paths for debt restructuring and established a Financial Oversight and Management Board
(FOMB; Oversight Board). Title III established a debt restructuring process that draws on the Bankruptcy Code.
Title VI set up a debt restructuring process similar to some sovereign debt procedures. U.S. District Court Judge
Laura Taylor Swain was chosen to preside over Title III cases. PROMESA conditioned the Oversight Board’s
termination on Puerto Rico’s ability to access “short-term and long-term credit markets at reasonable interest
rates.” Restructuring of the island’s debts is a likely prerequisite to that access. The Oversight Board, after delays
due to Hurricanes Irma and María in September 2017, led efforts to restructure the island’s public debts through
litigation and negotiations with the Puerto Rican government, hedge funds, bond insurers, and others.
Puerto Rico’s public debts fal into four categories: general obligation (GO) bonds and other debt payable through
the main Treasury accounts of the Commonwealth of Puerto Rico (CPR); sales-tax-backed debt known by its
Spanish acronym COFINA and other revenue-backed debt; debt of public corporations such as the Puerto Rico
Electric Power Authority (PREPA); and debt issued by local county-like governments (municipios) and other
smal er entities. In February 2019, a federal district court judge confirmed the plan to restructure COFINA debt.
Bonds with a par value of $17.6 bil ion were then exchanged for $12 bil ion in new bonds. After several
postponements in proceedings to restructure debts of the island’s central government, in early February 2021 the
Oversight Board announced an agreement with “certain bondholders” to restructure GO and related debts. The
Board filed the corresponding amended plan with the Title III court on March 8, 2021. The following day, the
Board filing suggested an agreement with pension bondholders was near. Implementation of plans requires
confirmation by the Title III court.
This report outlines the accumulation of the island’s public debts and how they are being restructured. Puerto
Rico has faced a series of fiscal chal enges since its postwar economic development strategy of industrialization
faltered in the early 1970s, including acute budget crises in 2006-2007 and 2013-2016. The island’s lack of access
to a means to restructure its debts led to PROMESA’s enactment. This report focuses on the largest parts of the
island’s public debt. For brevity’s sake, it discusses restructuring of debts issued by PREPA, the Highways and
Transportation Authority (HTA), and smal er public corporations only in passing. The Puerto Rico Aqueduct and
Sewer Authority’s (PRASA’s) relatively stronger finances have kept it from having to restructure its bonds.
Hedge funds, which general y tolerate more financial risk than many traditional investors, have played prominent
roles in Puerto Rico’s debt restructuring. As default risks on Puerto Rican public debt became evident, many
mutual funds reduced their holdings, al owing some hedge funds to increase theirs. In spring 2020, some accused
hedge funds of trading on private information obtained through confidential Title III negotiations. In June 2020,
Judge Swain required parties to disclose more about their holdings. Once those disclosures were made, some
cal ed for investigations of al eged trading on nonpublic information obtained in debt negotiations. Legislation
was introduced during the 116th Congress (e.g., H.R. 6975, H.R. 683, S. 1675) to amend PROMESA in ways that
could affect debt restructuring processes. On February 24, 2021, the House passed H.R. 1192, which would
mandate certain disclosures by professionals working on the island’s debt restructuring. A companion bil (S. 375)
was introduced in the Senate. This report’s Appendices include a more detailed listing of Puerto Rico’s pre-
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Restructuring Puerto Rico’s Public Debts

PROMESA public debts, an analysis of the evolution of bond prices and trading volumes during the restructuring
process, a chronology of selected events, and a glossary of abbreviations in English and Spanish.
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Introduction
Puerto Rico’s public debts, which totaled just over $70 bil ion when the Puerto Rico Oversight,
Management, and Economic Stability Act (P.L. 114-187; PROMESA) became law on June 30,
2016, are now in the midst of one of the largest restructurings of public debt in U.S. history.
Puerto Rico’s fiscal troubles fel under national scrutiny during summer 2013, after the City of
Detroit’s bankruptcy filing reminded investors that municipal bonds are not risk free, and after
the financial press noted the precarious state of Puerto Rico’s public finances.1 Beyond the
consequences for the island, likely to last decades, the restructuring of Puerto Rico’s public debts
could inform future federal responses to fiscal strains faced by some state and local
governments.2
PROMESA, among other provisions, created two paths for debt restructuring: one that draws on
the Bankruptcy Code and another that is similar to some sovereign debt procedures. It also
established a Financial Oversight and Management Board (FOMB; Oversight Board) and
empowered it to represent the Puerto Rican government in those debt restructuring processes.
Those processes have included extensive litigation and negotiations with the Puerto Rican
government, hedge funds, bond insurers, and other creditors. Destruction caused by Hurricanes
Irma and María in September 2017, gubernatorial turnover, and the complexity of litigation have
delayed debt restructuring.
PROMESA conditions the Oversight Board’s termination on Puerto Rico’s ability to access
“short-term and long-term credit markets at reasonable interest rates.”3 Completing the process of
restructuring the island’s debts into a fiscal y sustainable form is a likely prerequisite to that
access.
The City of Detroit, by way of comparison, had about $18 bil ion in debt when it entered
bankruptcy in 2013.4 Puerto Rico’s public debts, which totaled over $70 bil ion before including
unfunded pension liabilities, are about four times larger than that sum. Puerto Rico could also
become one of the most expensive restructurings ever, with professional fees that might exceed
$1.4 bil ion.5
Disputes over the relative priority of general obligation (GO) debt claims and claims of sales-and-
use-tax-backed debt were a central point of contention in the debt restructuring process. The
Oversight Board decided to first restructure the sales tax-backed bonds—known as COFINA
bonds after their Spanish acronym.6 In August 2018, the Board reached an agreement with

1 Andrew Bary, “T roubling Winds: Puerto Rico’s Huge Debt Could Overwhelm Attempts to Revive its Economy,”
Barron’s, August 26, 2013.
2 For instance, one bankruptcy lawyer stated that Puerto Rico’s debt restructuring process would “ almost certainly
shape future municipal restructurings.” David R. Doyle, “ T he Puerto Rico ‘Bankruptcy’: a Cheat Sheet,” American
Bankruptcy Institute, https://www.abi.org/feed-item/the-puerto-rico-%E2%80%9Cbankruptcy%E2%80%9D-a-cheat-
sheet .
3 PROMESA §209 also requires implementation of modified accrual accounting standards and balanced budgets.
4 Roni A. Elias, “A Lesson From Detroit: Ways to Make Municipal Bankruptcy More Rare and Less Painful,” Federal
Lawyer, May 2017, p. 70, https://www.fedbar.org/wp-content/uploads/2017/05/bankruptcy_elias-pdf-1.pdf.
5 Christian Ramos Segarra and Rosario Fajardol, “$832 Million in Attorney Fees for Puerto Rico Bankruptcy Process,”
Weekly Journal/El Vocero, January 27, 2021, https://www.theweeklyjournal.com/business/832-million-in-attorney-
fees-for-puerto-rico-bankruptcy-process/article_e6b6a3f4-6027-11eb-af4c-e796e78d7a4c.html.
6 COFINA is the Corporación del Fondo de Interés Apremiante de Puerto Rico. Appendix D lists commonly used
abbreviations and acronyms.
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COFINA bondholders on a split of sales tax revenues between COFINA debt service and Puerto
Rico’s central government, the Commonwealth of Puerto Rico (CPR). That agreement became a
plan that a federal district court judge confirmed on February 4, 2019, clearing the way to a
restructuring of Puerto Rico’s COFINA debt, which, at that time, represented nearly one-quarter
of the island’s outstanding public debt.7 Bonds with a par value of $17.6 bil ion were then
exchanged for $12 bil ion in new bonds.8
On February 23, 2021, the Oversight Board announced a revised plan agreed to by “certain
bondholders” to restructure the island’s GO bonds and certain other central government debts.9
The plan, if implemented, would reduce the CPR’s debt service obligations substantial y, albeit
by less than a plan put forth in October 2020. The Board filed a disclosure statement describing
the amended plan with the Title III court on March 8, 2021.10 Confirmation by the Title III court
would be required to implement that plan, as wel as other plans currently being negotiated.
This report outlines the accumulation of Puerto Rico’s debt and the restructuring of the island’s
public debt through processes established by PROMESA. Puerto Rico’s postwar economic
development strategy of industrialization, as noted below, faltered after the 1973 energy crisis.
Acute fiscal crises in 2006-2007 and 2013-2016 resulted in debt levels that could neither be
sustained nor addressed through the Bankruptcy Code, which led to PROMESA’s enactment.
This report focuses on the largest portions of the island’s public debt. For brevity’s sake, it omits
discussion of pensions and the restructuring of public corporations, such as the Puerto Rico
Electric Power Authority (PREPA), the Highways and Transportation Authority (HTA), and
smal er entities. Also, the Puerto Rico Aqueduct and Sewer Authority’s (PRASA’s) somewhat
stronger financial position has enabled it to avoid the need to seek a restructuring of its bonds.11
The report’s Appendices include a summary of the structure of Puerto Rico’s pre-restructuring
public debts, an analysis of the evolution of prices and trading volumes of selected bonds during
the restructuring process, a chronology of selected events, and a glossary of abbreviations in
English and Spanish.

7 Laura T aylor Swain, U.S. District Judge, “Memorandum of Opinion and Order Approving Settlement Between
Commonwealth of Puerto Rico and Puerto Rico Sales T ax Financing Corporation,” February 4, 2019, at
https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT AzMDUx&id2=0.
8 Robert Slavin, “COFINA Swaps Out Bonds in Biggest U.S. Muni Restructuring,” Bond Buyer, February 12, 2019.
9 Oversight Board, “Oversight Board Reaches Agreement in Principle on Debt: Creditors Holding About $7 Billion of
General Obligation and Public Building Authority Bonds Committed; Mediation Continues to Gain Support Across
Broad Spectrum of Creditors,” press release, February 10, 2021, https://drive.google.com/file/d/
149MrGro7s_q6W5tc8QoxLpwRo8NArnYR/view. Also see Oversight Board, “ New Debt Agreement Opens Path to
Exit From Bankruptcy,” press release, February 23, 2021, https://drive.google.com/file/d/
1go1HKPzYdtGFVFSfEotCgGDW7T Hhtn0j/view.
10 In re: CPR, Oversight Board, Second Amended Title III Joint Plan Of Adjustment of the Commonwealth of Puerto
Rico, et al., March 8, 2021, https://drive.google.com/file/d/1IP-znS391lEFMcg35u6flHfcndndyxec/view.
11 T he federal government agreed to reduce debt service on Clean Water State Revolving Fund Programs, the Drinking
Water State Revolving Fund Programs, and the U.S. Department of Agriculture’s Rural Development (RD) Program.
See PRASA, 2020 Fiscal Plan, June 29, 2020, pp. 3-60, 3-61, https://www.aafaf.pr.gov/wp-content/uploads/2020-
Fiscal-Plan-for-PRASA-as-Certified-by-FOMB-on-June-29-2020.pdf.
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The Long Build-Up to Puerto Rico’s Debt Crisis
Over the past few decades, Puerto Rico’s government has struggled to collect sufficient revenues
to cover outlays, which led to rising public debt levels and growing unfunded pension liabilities.12
Postwar Development Strategy Made Puerto Rico a Model
From the onset of World War II in 1939 until the 1973 energy crisis, Puerto Rico had been put
forth as a model for economic development through industrialization supported by generous tax
incentives.13 That energy crisis, along with broader changes in the global economy including
heightened trade competition from middle-income countries, brought Puerto Rico’s postwar era
of rapid economic progress to an end.14
During the 20th century, Puerto Rico closed much of the gap with the mainland in per capita
income, literacy, and health status.15 Nonetheless, by the 1970s Puerto Rico was stil far poorer, in
terms of median household income, than the poorest mainland state. Since then, that income gap
has narrowed more slowly.16 Despite the economic slowdown in the 1970s, public debt levels
remained nearly steady before increasing in the mid-1980s, as shown in Figure 1. By 2014, the
island’s public debt reached a level roughly equivalent to its gross national product (GNP).17
Public corporations, which provide electricity, water, transportation, and other publicly provided
services, accounted for much of that accumulation of debt. Puerto Rico’s central government,
whose budgets were considered separate from its public corporations, kept revenues and outlays
roughly in balance until 2000, when outlays began to consistently outpace revenues.18
The 2006 Budgetary Crisis
In 2006, the Puerto Rican legislature and then-Governor Aníbal Acevedo Vilá reached an impasse
on a budget and how to address looming fiscal chal enges. By late 2006, after credit rating
agencies downgraded the island’s GO bonds nearly to junk status, island officials and their

12 For more information, see CRS Report R44095, Puerto Rico’s Current Fiscal Challenges, by D. Andrew Austin.
13 T errence Farrell, “Arthur Lewis and the Case for Caribbean Industrialisation,” Social and Economic Studies, vol. 29,
no. 4 (December 1980), pp. 52-75, http://www.jstor.org/stable/27861908. According to one recent analysis, “ real [gross
domestic product] GDP per capita increased at a rate of 5.3 percent between 1950 and 1974.” John Devereux,
“Arrested Development? Puerto Rico in an American Century,” Journal of Economic History, vol. 79, no. 3
(September 2019), pp. 708-735.
14 See CRS Report R44095, Puerto Rico’s Current Fiscal Challenges, by D. Andrew Austin. Congressional clients may
request a longer memorandum version.
15 Brian Marein, “Economic Development in Puerto Rico after US Annexation: Anthropometric Evidence,” Economics
& Hum an Biology, vol. 38, August 2020.
16 T he 1990 Census found Puerto Rico’s median household income was 44% of Mississippi’s and 30% of the U.S.
estimate. T he 2014-2018 American Community Survey found Puerto Rico’s median household income was 46% of
Mississippi’s and 33% of the U.S. estimate.
17 Government Development Bank (GDB), Commonwealth Quarterly Financial Report, July 17, 2014, pp. 41-42,
http://www.gdb-pur.com/documents/CommonwealthQuarterlyReport71714.pdf; and Commonwealth of Puerto Rico,
Consolidated Annual Financial Report for FY2013 , note 22, pp. 230-231, http://www.hacienda.gobierno.pr/downloads/
pdf/cafr/FINANCIAL_REPORT _2013.pdf. GNP, which measures the island’s total income, is typically used to
measure the Puerto Rican economy because gross domestic product (GDP) is distorted by the tax av oidance strategies
of multinational corporations with Puerto Rican subsidiaries.
18 Carlos A. Colon de Armas, “ La Constitución de Puerto Rico y su Requisit o de un Presupuesto Balanceado,” Revista
Jurídica Universidad de Puerto Rico, vol. 85, no. 3 (2016), pp. 819-832, esp. T able 2.
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financial advisors soon came to view bonds backed by sales tax revenues as one way to manage
fiscal chal enges.
Tax-Backed COFINA Bonds Provided Stop-Gap Financing
Seeking to pay off old debts incurred without a clear means of repayment, the island’s legislature
and governor enacted measures in the second half of 2006 that set up a securitization of a new
5.5% sales and use tax, which replaced an excise tax.19 The tax-backed bonds were able to obtain
a high credit rating, and thus could be issued with a lower yield, reducing debt service costs to the
Puerto Rican government.
Figure 1. Puerto Rico’s Public Debt, 1960-2017
In bil ions of constant (FY2017) dol ars

Source: Statistical Appendix (Apéndice Estadístico), various years; available at https://web.archive.org/web/
20160831062749/http://www.jp.gobierno.pr/Portal_JP/Default.aspx?tabid=184.
Notes: Data represent gross public debt of Puerto Rico as of June 30 of each year, provided by the Government
Development Bank of Puerto Rico. Figures for 1989 and 2014 were preliminary estimates. HTA and the
University of Puerto Rico are included in the Commonwealth Government subtotal. The U.S. GDP price index is
used to adjust levels for inflation. Recent Apéndices Estadístico omit debt data.

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COFINA was established as a public corporation controlled by the Government Development
Bank (GDB) to issue bonds backed by half of the proceeds of the new tax, which were divided
between senior bonds carrying stronger investor protections and junior (subordinate) bonds.20
COFINA provided funds to the Puerto Rican government and helped service its debts, but its
proceeds were not tied to infrastructure projects. Instead, funds covered past debts and continuing
operating budget deficits—a process termed “scoop and toss.”21 The legal status of COFINA and
its relation to fiscal provisions in the Puerto Rican Constitution later became a central point of
contention in debt restructuring litigation and negotiations, as subsequent sections wil discuss.
As the Great Recession of 2007-2009 strained Puerto Rico’s economy and public finances, more
COFINA bonds were issued. Those bonds were viewed as a more favorable financing option
because they carried better credit ratings than CPR GO debt and thus could be issued with a lower
yield. The last COFINA bonds were issued in 2011.22 From 2009 through 2011, former Oversight
Board member Carlos García held senior posts in GDB, including serving as its president. From
2001 through 2006, García worked at Banco Santander, which helped place Puerto Rico’s
pension bonds and which accumulated large holdings of COFINA bonds.23
Experiences with Pension Obligation Bonds
The Great Recession and ongoing budgetary pressures also affected Puerto Rico’s three public
pension systems, which had been severely underfunded. Unfunded obligations of Puerto Rico’s
public pension systems were estimated at over $40 bil ion in 2016. Many beneficiaries of Puerto
Rico’s public pensions were ineligible for the federal Social Security program, leaving them
dependent on systems with few remaining assets and uncertain financial prospects.
In 2006, Merril Lynch advisors suggested that the Puerto Rico Employee Retirement System
(ERS) and Merril Lynch issue at least $7 bil ion in pension obligation bonds (POBs). Merril
Lynch was unable to place those bonds with investors because the bonds were ineligible for a
federal tax exemption.
Other jurisdictions have issued POBs in the hope that returns on investments funded by bond
proceeds would cover principal and interest payments plus the forgone investment earnings that
could have been made using contributions pledged to back the bonds—an approach known as an
arbitrage strategy.24 That strategy might conceivably reduce unfunded pension liabilities were
investment yields sufficiently high, if fees and other costs were low, and if bond proceeds were
not diverted to cover other liabilities. Low yields or losses would expand pension liabilities.
In 2008, UBS (Union Bank of Switzerland)—which had also advised island officials on the
structure of the bonds—underwrote three rounds of POBs. UBS’s own proprietary funds—largely

20 COFINA (Corporación del Fondo de Interés Apremiante), known in English as the Puerto Rico Sales T ax Financing
Corporation, was established by Act 91-2006, enacted May 13, 2006, http://www.lexjuris.com/lexlex/leyes2006/
lexl2006091.htm; Act 117-2006, enacted July 4, 2006 (established sales and use tax); Act 291-2006, enacted December
26, 2006. Kobre & Kim LLP, Final Investigative Report, August 20, 2018, https://drive.google.com/file/d/19-
lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view. Part VI of that report presents an analysis of COFINA debt. GDB’s
board acted as COFINA’s board. Act 56-2007 (pp. 3-4) granted COFINA the same legal privileges as GDB.
21 Mike Cherney, “Borrowing Maneuver Catches Flak: ‘Scoop and T oss’ Involves Selling New Debt to Pay Off
Existing Bonds,” Wall Street Journal, December 2, 2013.
22 Kobre & Kim LLP, Final Investigative Report, August 20, 2018, pp. 179-188.
23 Santander Asset Management, “First Puerto Rico T ax Exempt Fund (Class A),” March 31, 2016,
http://periodismoinvestigativo.com/wp-content/uploads//2016/12/TE-1Q2016.pdf.
24 See Kobre & Kim, Final Investigative Report, August 20, 2018, Part VII.
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closed-end mutual funds marketed to Puerto Rico residents—bought 41% of the first POB issue,
89% of the second issue, and 38% of the third. Santander and Banco Popular, two of the largest
banks in Puerto Rico, apparently bought nearly al of the remaining bonds in the second issue.25
The Puerto Rico POBs incurred substantial losses and raised serious questions regarding the
judgement of ERS board members, the island government’s financial advisors, and investment
banks involved in implementing the bond sales. A 2010 analysis of the ERS POBs’ issuance by
financial analysis firm Conway MacKenzie was sharply critical of responsible officials.26 The
underlying bonds’ poor performance and the use of leverage resulted in substantial losses for
retail investors who held those UBS mutual funds.27 A Puerto Rico subsidiary of UBS agreed to
pay $34 mil ion to settle claims regarding marketing of its closed-end bond funds with the U.S.
Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority
(FINRA) in September 2015. One UBS financial advisor pleaded guilty to criminal fraud charges
in November 2018.28
Bonds and Municipal Finance
State and local governments borrow to finance schools, streets, sewers, and other public infrastructure projects,
or to support certain private projects, as wel as to close short-term gaps between public revenues and outlays.
U.S. state and local borrowing totaled over $3 tril ion in mid-2020.29 Municipal securities, such as bonds and notes,
are general y exempt from federal taxes. Most states exempt their own securities from tax, though fewer exempt
those of other states. Bonds issued by Puerto Rico, with some exceptions, offer a triple exemption from taxes—
that is, exempt from federal, state, and local taxes—that made them attractive to municipal mutual fund managers
and to high-income households.30
Municipal securities offered on the U.S. mainland are subject to SEC regulation, though securities issued by
investment companies based in U.S. territories are not covered by the 1940 Investment Company Act (ICA; P.L.
76-768).31

25 Craig McCann and Edward O'Neal, “UBS Succumbed to Conflicts and Purchased $1.7 Billion of Employee
Retirement System Bonds into its Puerto Rican Municipal Bond Funds in 2008,” Securities Litigation & Consulting
Group blog, November 6, 2014, http://blog.slcg.com/2014/11/ubs-succumbed-to-conflicts-and.html.
26 Conway Mackenzie, Review of the Events and Decisions That Have Led to the Current Financial Crisis of the
Em ployees Retirem ent System of the Governm ent of Puerto Rico , October 2010,
http://www.slcg.com/pdf/blog/13409.pdf.
27 Craig McCann, Edward O'Neal, and Susan Song, “UBS and Santander’s Role in Underwriting Employee Retirement
System Bonds,” Securities Litigation & Consulting Group blog, May 16, 2017, http://blog.slcg.com/2017/05/ubs-and-
santanders-role-in-underwriting.html. See also Nick Brown, “ Puerto Rico’s Other Crisis: Impoverished Pensions,”
Reuters, April 7, 2016, https://www.reuters.com/investigates/special-report/usa-puertorico-pensions/. Also see David
Evans, “How UBS Spread the Pain of Puerto Rico’s Debt Crisis to Clients,” Bloomberg, September 22, 2015,
https://www.bloomberg.com/news/articles/2015-09-22/how-ubs-spread-the-pain-of-puerto-rico-s-debt-crisis-to-clients.
28 U.S. Department of Justice, “ Former Registered Financial Advisor Pleads Guilty to Bank Fraud,” press release,
November 16, 2019, https://www.justice.gov/opa/pr/former-registered-financial-advisor-pleads-guilty-bank-fraud-role-
scheme-fraudulently-obtain. Also see Kate McCormick, “ Former UBS Insider Says Banks Fueled Economic Crisis in
Puerto Rico,” May 1, 2018, PBS Frontline, https://www.pbs.org/wgbh/frontline/article/former-ubs-insider-says-banks-
fueled-economic-crisis-in-puerto-rico/.
29 Federal Reserve System Board of Governors, “State and Local Governments; Debt Securities and Loans; Liability,
Level [SLGSDODNS],” https://fred.stlouisfed.org/series/SLGSDODNS.
30 T he exemption was included in the 1917 Jones Act (P.L. 64 -368) and is codified as 48 U.S.C. §745. Employee
Retirement System (ERS) bonds, for example, did not qualify for certain mainland tax exemptions. See Kobre & Kim
LLP, Final Investigative Report, August 20, 2018, https://drive.google.com/file/d/19-
lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view, p. 338.
31 P.L. 115-174 §506, enacted in May 2018, set a three-year phaseout period for that exemption, which the SEC can
extend for another three years.
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Municipal—or muni—securities mostly fal into two broad categories. General obligation (GO) bonds are typical y
backed by a government’s pledge of “ful faith and credit,” backed by the power to tax. Revenue bonds, often
issued by public utilities, public corporations, or semi-independent authorities, can be backed by specific cash flows
from a project or source—such as sales of water or electric power, sewer charges, or highway tol s—or by a
broadly applied tax. Revenue bonds, while tied to narrower income streams than GO debt, can qualify for certain
investor protections.32
Default rates for muni securities historical y have been wel below rates for corporate debt, although municipal
default rates have risen in the past two decades. The credit rating agency Moody’s found that over a 10-year
period (2008-2017) almost 10% of corporate issuances defaulted, but less than 0.5% of municipal issuances did.33
Major defaults in recent decades include a mismanaged nuclear power project in Washington State, Orange
County in Southern California, and the City of Detroit.34 Arkansas was in default in the 1930s, and several states
and the Territory of Florida defaulted or repudiated debts in the 19th century.35
2013-2015: Fiscal Pressures Intensify
The island’s fiscal condition began to raise widespread concerns in financial markets and among
policymakers in mid-2013, after Detroit filed for municipal bankruptcy and a business magazine
criticized Puerto Rico’s fiscal condition.36 Then-Governor Alejandro García Padil a, who was
inaugurated in January 2013, hired a team of debt restructuring advisors in early 2014.37
Ratings on the island’s public debt—which had reached a level roughly equivalent to the island’s
gross national product (GNP)38—were downgraded in February 2014.39 Following enactment of a
local bankruptcy law, another round of downgrades put several of the debt ratings for the island’s
public corporations below investment grade. Ratings for COFINA and GO bonds were also

32 James E. Spiotto, “T he History and Justification for T imely Payment of Statutory Liens and Pledged Special
Revenues Bond Financing in a Chapter 9 Municipal Debt Adjustment Proceeding: Is a Model State Law Necessary or
Required?” Municipal Finance Journal, vol. 39(4), winter 2019, pp. 47-97.
33 Moody’s, U.S. Municipal Bond Defaults and Recoveries 1970-2017, July 31, 2018. Excerpt available at
https://www.treasurer.ca.gov/cdiac/seminars/2019/20190212/day2/6.pdf.
34 Michael Johnston, “T he Biggest Municipal Bond Disasters Of All T ime,” MunicipalBonds.com,
https://www.municipalbonds.com/news/the-biggest-municipal-bond-disasters-of-all-time/.
35 William A. Scott, Repudiation of State Debts in the United States, (New York: Crowley, 1893), p. 276. T hose states
were Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina, T ennessee, and
Virginia. Also see William B. English, “ Understanding the Costs of Sovereign Default: American State Debts in the
1840s,” American Economic Review, vol. 86, no. 1 (March 1996), pp. 259-275.
36 Andrew Bary, “T roubling Winds: Puerto Rico’s Huge Debt Could Overwhelm Attempts to Rev ive its Economy,”
Barron’s, August 26, 2013.
37 Mark T annenbaum and Martin Z. Braun, “Puerto Rico GDB Hires Millstein Unit as Financial Adviser,” Bloomberg,
March 6, 2014, http://www.bloomberg.com/news/articles/2014-03-05/puerto-rico-gdb-hires-millstein-affiliate-as-
financial-adviser. Also see Emily Glazer and Mike Cherney, “ Puerto Rico Finance Arm Hires Restructuring Lawyers:
Government Development Bank for Puerto Rico Hires Cleary Gottlieb Steen & Hamilton,” Wall Street Journal, April
7, 2014.
38 GDB, Commonwealth Quarterly Financial Report, July 17, 2014, pp. 41-42, http://www.gdb-pur.com/documents/
CommonwealthQuarterlyReport71714.pdf. GNP, which measures the value of output created within a given
jurisdiction, is considered a more accurate indicator of Puerto Rico’s level of economic activity than gross do mestic
product (GDP), which in Puerto Rico is strongly influenced by transactions of multinational corporations that often
have a tenuous connection to the island’s economy.
39 Commonwealth of Puerto Rico, Consolidated Annual Financial Report for FY2013, note 22, pp. 230-231,
http://www.hacienda.gobierno.pr/downloads/pdf/cafr/FINANCIAL_REPORT _2013.pdf.
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downgraded.40 The downgrades and the state of Puerto Rico’s public finances ended the island’s
access to capital markets.41
Last GO Bonds Sold Directly to Hedge Funds in March 2014
Lacking access to normal channels of municipal finance, the island’s government issued $3.5
bil ion in GO bonds to a syndicate of hedge funds in March 2014—a month after the credit
ratings on the island’s GO bonds had been downgraded to junk status.42 The bonds carried an
8.6% yield, wel above usual rates in the municipal finance market.43 The 2014 GO bonds were
issued with a provision that New York State law would govern disputes, then viewed as a
significant investor protection. Moreover, the Puerto Rico Constitution sets debt service as a top
priority, before other public outlays.
About $900 mil ion of the bond proceeds went to pay off bank loans, including to banks involved
in underwriting the issue.44 SEC staff reportedly recommended actions against bankers involved
in the deal, including former GDB head Jorge Irizarry, who later led a coalition said to represent
local junior COFINA bondholders.45 The SEC declined to pursue those charges.46 Investment
funds Paulson & Company, Och-Ziff Capital,47 Fir Tree Partners, Perry Capital, and Brigade
Capital reportedly each bought more than $100 mil ion of the issue.48

40 Ley para el Cumplimiento con las Deudas y para la Recup eración de las Corporaciones Públicas de Puerto Rico
(Ley 71 de 2014; Act 71-2014; Law Pursuant to the Debts and for the Recovery of the Public Corporations of Puerto
Rico). T he law is also called the “ Recovery Act” or the “ Local Bankruptcy Law” (“ Ley de Quiebra Criolla”).
41 See Moody’s Investor’s Service, “ Puerto Rico’s Debt Restructuring Law Raises Default Risk for Public Corporations
and the Commonwealth,” July 3, 2013. Also see Kobre & Kim LLP, Final Investigative Report, August 20, 2018,
https://drive.google.com/file/d/19-lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view, pp. 189-190; and CRS Report
R44095, Puerto Rico’s Current Fiscal Challenges, by D. Andrew Austin, Puerto Rico’s Current Fiscal Challenges, by
D. Andrew Austin.
42 “Fitch Cuts Puerto Rico’s Debt to Junk,” New York Times, February 11, 2014, https://dealbook.nytimes.com/2014/
02/11/fitch-cuts-puerto-ricos-debt-to-junk/. Downgrades were triggered by warnings that the Government Development
Bank faced liquidity challenges.
43 T he Series A bonds—CPR’s sole bond issuance in 2014—offered at 93¢ on the dollar, carry an 8% coupon rate,
implying an initial yield of 8.6%. T he average yield for Bond Buyer 20-Bond GO Index for 2014 was 4.25%. See WM
Financial Strategies, “ Rates Over T ime,” November 2020, http://www.munibondadvisor.com/market.htm. T he bond’s
official statement warned the “ Commonwealth may be unable to honor its obligation to pay debt service on the Bonds,”
GDB, 2014A GO Bond Official Statement, March 11, 2014, https://web.archive.org/web/20160317092340/http://
www.gdbpr.com/investors_resources/documents/CommonwealthPRGO2014SeriesA-FinalOS.PDF.
44 Laura Sullivan, “ How Puerto Rico’s Debt Created A Perfect Storm Before T he Storm,” NPR/Frontline, May 2, 2018,
https://www.npr.org/2018/05/02/607032585/how-puerto-ricos-debt-created-a-perfect-storm-before-the-storm.
45 Martin Z. Braun, “SEC Probes Barclays, Morgan Stanley Bankers Over Puerto Rico,” Bloomberg, June 28, 2017,
https://www.bloomberg.com/news/articles/2017-06-28/sec-probes-barclays-morgan-stanley-bankers-on-puerto-rico-
bonds. Also see Robert Slavin, “ Morgan Stanley Hires Former GDB President to Attract Puerto Rico Business,” Bond
Buyer, April 30, 2013. Irizarry later headed the Bonistas del Patio group, which played a role in the COFINA
restructuring.
46 Carlos A. Otero, “Concluye sin Acusaciones Pesquisa de la SEC,” [SEC Investigation Concludes without Charges],
El Vocero, April 9, 2018, p. 5, https://issuu.com/vocero.com/docs/v04092018__1_/4.
47 Och-Ziff changed its name to Sculptor Capital in 2019, two weeks before a deferred prosecution agreement with the
U.S. Department of Justice related to trade in conflict diamonds and minerals expired. See Sculptor Capital, “Och -Ziff
Capital Management Changes Name to Sculptor Capital Management,” press release, September 12, 2019,
https://www.globenewswire.com/news-release/2019/09/12/1914643/0/en/Och-Ziff-Capital-Management-Changes-
Name-to-Sculptor-Capital-Management.html. Also see U.S. v. Och-Ziff, Deferred Prosecution Agreem ent, September
26, 2016, https://www.justice.gov/criminal-fraud/file/900261/download.
48 Joel Cintrón Arbasetti, “ Vulture Funds have Puerto Rico Cornered,” Center for Investigative Journalism, April 9,
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After the 2014 GO issuance, hedge funds expanded their involvement in Puerto Rico, both in
purchases of bonds as wel as contact with officials and policymakers. The ratings agency Fitch,
according to reports, found that some 60 hedge funds held about $16 bil ion of Puerto Rico’s
public debt, about 22% of the total amount, by fal 2014.49 In addition, the investment bank
Goldman Sachs’s holdings of Puerto Rican debt increased to a reported $1.3 bil ion in 2014.50
Federal Courts Strike Down Local Bankruptcy Law
The Puerto Rican government lost access to Chapter 9 of the U.S. Bankruptcy Code, which
governs the adjustment of municipal debts, in 1984.51 Lacking that access and with major public
corporations facing severe liquidity chal enges, island policymakers sought to create a path to
restructuring debts through local laws. In particular, the deterioration of PREPA’s finances and
operations became evident in spring 2014.52 In August 2014, PREPA, unable to afford fuel,
signed a restructuring support agreement (RSA) with its creditors, which included appointment of
an outside chief restructuring officer.53
In June 2014, Puerto Rico enacted a local bankruptcy law, which heightened concerns of default
risks.54 The hedge fund Blue Mountain Capital Management, along with the Oppenheimer and
Franklin mutual fund groups, chal enged the law.55 Other hedge funds reportedly supported the
law, which would enhance CPR’s ability to pay GO debt by al owing cramdowns of public

2015, https://periodismoinvestigativo.com/2015/04/vulture-funds-have-puerto-rico-cornered/.
49 Michael Corkery, “Let Us Help You, Hedge Funds T ell Puerto Rico,” New York Times, September 12, 2014,
https://dealbook.nytimes.com/2014/09/12/puerto-rico-finds-it-has-new-friends-in-hedge-funds/. Also see Joel Cintrón
Arbasetti and Carla Minet, “Out in the Open, Hedge Funds in Puerto Rico,” Center for Investigative Journalism, July
14, 2015, https://periodismoinvestigativo.com/2015/07/out-in-the-open-hedge-funds-in-puerto-rico/.
50 Brian Chappatta, “Puerto Rico’s 10% Yields Prove T oo T empting for Goldman to Skip,” Bloomberg Business, May
26, 2015.
51 P.L. 98-353 amended the Bankruptcy Code to exclude Puerto Rico from the definition of “State” for “the purpose of
defining who may be a debtor under chapter 9,” which removed Puerto Rico’s access to Chapter 9. See Jon Greenberg,
“Mystery: Strom T hurmond, Puerto Rico and Bankruptcy Protection,” PolitiFact, April 27, 2016,
https://www.politifact.com/factchecks/2016/apr/27/john-oliver/mystery-strom-thurmond-puerto-rico-and-bankruptcy-/.
T he late Judge T orruella, an expert on U.S.-Puerto Rico relations, stated in a concurrence that “ there is no legislative
record on which to rely for determining Congress’s reasons behind the 1984 Amendments. A tracing of its travels
through the halls of Congress sheds less light than a piece of coal on a moonless night regarding the reason for its
enactment.” Franklin Cal. T ax-Free T r. v. Puerto Rico, 805 F.3d 322, 349 (1st Cir. 2015) (T orruella, J., concurring in
the judgment), aff’d, Puerto Rico v. Franklin Cal. T ax-Free T r., 136 S. Ct. 1938 (2016).
52 In June 2014, Municipal Market Analytics (MMA) reported that “ PREPA’s reality is that it is operating deep in the
red, with antiquated technology, high costs and declining sales.” See T estimony of Robert Donahue, MMA Managing
Director, in U.S. Congress, House Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial And
Antitrust Law, H.R. 870, 114th Cong., 1st sess., February 26, 2015, p. 28, https://www.jonesday.com/files/upload/robert -
donahue-testimony.pdf.
53 For details, see CRS Report R44095, Puerto Rico’s Current Fiscal Challenges, by D. Andrew Austin.
54 Ley para el Cumplimiento con las Deudas y para la Recuperación de las Corporaciones Públicas de Puerto Rico
(Ley 71 de 2014; Act 71; Law Pursuant to the Debts and for the Recovery of the Public Corporations of Puerto Rico).
T he law was also called the “Recovery Act” or the “Local Bankruptcy Law” (“ Ley de Quiebra Criolla”). See also
Moody’s Investor’s Service, “ Puerto Rico’s Debt Restructuring Law Raises Default Risk for Public Corporations and
the Commonwealth,” July 3, 2013.
55 Carlos F. Ugalde, “Puerto Rico’s Municipal Debt Crisis: A T wo-Front Battle?” Fordham Urban Law Journal, March
17, 2015, https://news.law.fordham.edu/fulj/2015/03/17/puerto-ricos-municipal-debt-crisis-a-two-front-battle/.
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corporations’ debt.56 The Supreme Court struck down the local bankruptcy law,57 holding that,
although the Bankruptcy Code prevents municipalities in Puerto Rico from seeking relief under
Chapter 9, the code nonetheless preempted Puerto Rico’s Recovery Act, and thus barred the CPR
from enacting its own municipal bankruptcy scheme to restructure debt.58
Governor García Padilla Calls Debt “Unpayable,” Declares Fiscal Emergency
Then-Governor García Padil a cal ed Puerto Rico’s public debts “unpayable” at the end of June
2015.59 In the following year, the governor took a series of actions to conserve the government’s
liquidity in the face of mounting fiscal pressures. At the beginning of August 2015, three smal
public bond issues were in default.60 At the end of November 2015, Governor Padil a signed an
executive order authorizing a clawback of balances and revenues from transportation and
infrastructure entities.61 In April 2016, he signed into law Act 21-2016, which declared that a debt
service moratorium could be invoked to preserve funding for essential public services.62 As
Puerto Rico’s defaults widened, Congress considered measures to address the island’s fiscal
crisis, which culminated in PROMESA’s enactment.
On June 29, 2016—two days before a $780 mil ion GO debt service payment was due—
Governor Padil a suspended payments on GO and Commonwealth-guaranteed bonds, leading to
the first defaults on CPR debt.63 The following day, June 30, 2016, PROMESA was signed into
law by President Obama to address Puerto Rico’s debts and finances. Before describing
provisions of PROMESA, the next section analyzes the structure of Puerto Rico’s debt stack.
Predefault Structure of Puerto Rico’s Public Debts
Puerto Rico’s fiscal crisis and its accumulations of debt are intertwined with the structure of its
public sector. This section surveys Puerto Rico’s public debts and briefly discusses how they
were accumulated. The Puerto Rican government includes a central government—the

56 Michael Cembalest, “Passage to Puerto Rico,” J.P. Morgan, Eye on the Market , July 11, 2016,
https://www.jpmorgan.com/directdoc/passagetopuertorico.pdf. A cramdown is a reduction or restructuring of debts
through a legal procedure that supersedes prior contractual requirements.
57 Puerto Rico v. Franklin Cal. T ax-Free T r., 136 S. Ct. 1938 (2016). Also see Stephen J. Lubben, “Puerto Rico and the
Bankruptcy Clause,” American Bankruptcy Law Journal, vol. 88, no. 4 (fall 2014), pp. 553-578 (at p. 573).
58 See 136 S. Ct. at 1942. Chapter 9 of the Bankruptcy Code defines a municipality as a “political subdivision or public
agency or instrumentality of a State.” Cf. 11 U.S.C. §101(40). T he Bankruptcy Code thus covers a wider set of public
entities than the term municipalities usually connotes. In Puerto Rico, municipalities (m unicipios) resemble county
governments on the mainland.
59 Mensaje del Gobernador Alejandro García Padilla Sobre Situación Fiscal de Puerto Rico (Governor Alejandro
García Padilla’s Message on the Fiscal Sit uation of Puerto Rico), June 29, 2015, https://www.elnuevodia.com/noticias/
politica/nota/mensajedelgobernadoralejandrogarciapadillasobresituacionfiscaldepuertorico -2066574/.
60 Puerto Rico Standard & Poors, “Rating on T hree Puerto Rico PFC Series Lowered to ‘D’ On Non -Payment,”
RatingsDirect , August 3, 2015, http://www.gdb-pur.com/investors_resources/documents/SP-RatingsDirectNews-Aug-
03-2015.pdf. How clawback funds were used is unclear. See Luis J. Valen tín Ortiz, “ Light Shed on Clawed-Back
Funds,” Caribbean Business, August 24, 2016, https://caribbeanbusiness.com/light-shed-on-clawed-back-funds/.
61 Gov. Alejandro García Padilla, Executive Order 2015-46, November 30, 2015, https://estado.pr.gov/es/ordenes-
ejecutivas/.
62 Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Act 21 -2016, http://www.lexjuris.com/lexlex/
Leyes2016/lexl2016021.htm.
63 Gov. Alejandro García Padilla, Executive Order 2016-30, June 29, 2016, https://www.estado.pr.gov/es/ordenes-
ejecutivas/. For the July 1, 2016, GO debt service payment, see Act 21 -2016 at p. 53. Some other sources cite other
amounts for that payment.
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Commonwealth of Puerto Rico (CPR)—as wel as some 50 public corporations.64 These public
corporations have a wide range of responsibilities, including providing electricity, water and
sewer service, social services, health care, and maintenance of ports and parks. The island’s
public debt, issued by 18 distinct public entities, presents an unusual y complex debt structure.
Transfers and cross-subsidies among different public agencies and corporations, often routed
through the former Government Development Bank, added to that complexity.65
Government Development Bank as Fiscal Agent and Financial
Advisor
The GDB—the CPR’s former fiscal agent and financial advisor to each governor’s
administration—had a central role in Puerto Rico’s debt crisis. In postwar decades, it supported
the island’s industrialization strategy and served a mix of public and private clients. A GDB head
in 2015 described its role as “real y a combination of things that the Treasury, the New York Fed
and a development bank like the Inter-American Development Bank do.”66 In particular, the GDB
controlled debt issuance and negotiated with investment banks. The GDB defaulted on bond
payments in May 2016. In 2017, the newly formed Fiscal Agency and Financial Advisory
Authority (FAFAA) assumed most of GDB’s functions.67
Categories of Public Debt
Restructuring Puerto Rico’s finances has involved complex disputes among bondholders invested
in different types of Puerto Rico’s public debt. This section outlines the structure of the island’s
public debts. Since Puerto Rico lost access to credit markets in late 2014, its current debt structure
has been largely unchanged, aside from the runoff of short-term notes, the 2018 wind-down of the
GDB, and the 2019 restructuring of sales-tax-backed COFINA bonds (COFINA—an acronym for
the Corporación del Fondo de Interés Apremiante—is also known as the Puerto Rico Sales Tax
Financing Corporation). Figure 2 and Table A-1 show debt levels as of the end of July 2016.

64 Oficina de Gerencia y Presupuesto (Puerto Rico Office of Management and Budget; OGP), Organigrama
(Organization Chart), March 2, 2017, http://ogp.pr.gov/SobreOGP/Pages/organigrama.aspx. T hat version depicted 128
government entities. Former Governor Ricardo Rosselló Nevares (2017-2019) consolidated some smaller public
corporations into central government departments.
65 For example, a disclosure for the March 2014 NY Law GO bond issue stated (p. II -74) “GDB, however, has provided
financing in the past and may continue to provide financing to governmental entities that do not have sufficient
independent resources to cover their operating expenses, to the extent permitted by law.” CPR, 2014A GO Bond
Official Statem ent, March 14, 2020, https://emma.msrb.org/ER892398-ER588507-ER990528.pdf.
66 Mary Williams Walsh and Michael Corkery, “Behind Puerto Rico’s Woes, a Broadly Powerful Development Bank,”
New York Tim es, November 29, 2015; and Arturo C. Porzecanski, “ T he Government Development Bank: At the Heart
of Puerto Rico’s Financial Crisis,” American University working paper, September 18, 2014,
http://auapps.american.edu/aporzeca/www/
T he%20GDB%20at%20the%20Heart%20of%20Puerto%20Ricos%20Financial%20Crisis.pdf .
67 Enabling Act of the Fiscal Agency and Financial Advisory Authority , Act 2 of 2017, January 18, 2017,
https://www.aafaf.pr.gov/wp-content/uploads/a-002-2017-1.pdf.
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Figure 2. Puerto Rico’s Public Debt as of July 31, 2016, in $Bil ions

Source: CRS calculations based on Commonwealth Statement, December 18, 2016, https://web.archive.org/web/20170101045953/http://bgfpr.com/documents/
CommonwealthofPuertoRicoFinancialInfoFY201612-18-16.pdf.
Notes: Some items may not sum to totals due to rounding. This figure excludes debt of the Government Development Bank to minimize double counting. See source
document for other important notes and caveats.
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link to page 51 Puerto Rico’s Public Debts: Accumulation and Restructuring

Unfunded obligations of Puerto Rico’s pension systems, which were estimated at $49 bil ion as of
June 2015, are not included.68 Puerto Rico’s public debt, after adjustments to avoid double-
counting, totaled $68.7 bil ion at the end of July 2016.69
These debts can be divided by the source of funds used to repay them,70 namely,
1. the Commonwealth’s General Fund;
2. the sales & use tax or other specific revenue sources;
3. public corporations’ revenues;
4. other debts, including local governments (municipios) and nonrecourse debt.71
By July 2016, the category of debt repaid through the General Fund included $12.7 bil ion in GO
debt backed by the good faith, credit, and taxing power of the Commonwealth, as wel as $4.2
bil ion in Public Building Authority debt, most of which carried a CPR guarantee. Another $25.5
bil ion of Puerto Rico’s public sector debt was payable from selected tax receipts, including $17.3
bil ion in COFINA bonds. An additional $11.5 bil ion was payable through Commonwealth
appropriations. Outstanding bonds for the island’s largest public corporations, PREPA ($9.0
bil ion) and PRASA ($4.6 bil ion), are mostly repaid through utility charges.
Public Debt and the Puerto Rico Constitution
The Puerto Rican Constitution’s provisions related to budgets and debt have played a central role
in the process of restructuring the island’s public debts.72 Puerto Rico treated public corporations
as legal y separate from the island’s central government,73 although in practice governors largely
have controlled them indirectly via appointments of those corporations’ boards.74 Debts of most
public corporations were also considered as separate from debts of the central (CPR) government.
Five key fiscal policy clauses in the Puerto Rico Constitution are
 a balanced budget requirement that appropriations (asignaciones aprobadas)
not exceed available resources (los recursos disponibles) (Article VI, Section 8);

68 GDB, Commonwealth Statement, December 18, 2016, p. 222, https://web.archive.org/web/20170101045953/http://
bgfpr.com/documents/CommonwealthofPuertoRicoFinancialInfoFY201612-18-16.pdf.
69 Ibid. Also see Table A-1.
70 For a detailed discussion of different categories of public debts, see GDB, Commonwealth Statement, December 18,
2016, pp. 172-208.
71 T he Children’s Fund, which comprises most of the nonrecourse debt, stems from settlements of 1990s tobacco suits.
Archived CRS Report RL30058, Tobacco Master Settlem ent Agreem ent (1998): Overview, Im plem entation by States,
and Congressional Issues, by C. Stephen Redhead, is available to congressional clients upon request.
72 T he English version of the Puerto Rico Constitution is available at https://web.archive.org/web/20130302224519/
http://www.oslpr.org/english/PDF/
T he%20Constitution%20of%20the%20Commonwealth%20of%20Puerto%20Rico.pdf .
73 For instance, the law (Act 83 of 1941; 22 L.P.R.A. §193) creating PREPA’s predecessor states that “debts,
obligations, contracts, bonds, notes, promissory notes, receipts, expenses, accounts, funds, companies and property of
the Authority, its officers, agents or employees, should be understood to be of the said governmentally controlled
corporation and not of the central government.”
74 Geoff G. Burrows, “T he New Deal in Puerto Rico: Public Works, Public Health, and the Puerto Rico Reconstruction
Administration, 1935-1955,” City University of New York (CUNY) dissertation, 2014,
https://academicworks.cuny.edu/gc_etds/315.
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 a priority for payment of interest and principal for securities backed by the
“full faith and credit” of the Puerto Rico government in the case of a budgetary
shortfal (Article VI, Section 8);
 a “clawback” provision, mandating the reapplication of revenues to debt service
of full faith and credit pledges (Article VI Section 2);
 a prohibition on issuance of new GO debt if average debt service costs over the
two preceding fiscal years equaled or exceeded 15% of the average of total
revenues for those two years (Article VI Section 2);75
 a 30-year limit on GO bond maturities, except for housing bonds, which were
permitted maturities of up to 40 years (Article VI, Section 2).
The stringency of those provisions, however, was loosened in several ways. A 1974 Puerto Rico
Attorney General’s opinion held that bond proceeds counted as “available resources,” thus
relaxing the balanced budget requirement.76 The 15% limit and the 30-year maturity limit were
considered to apply only to central government GO debt, not to so-cal ed “extraconstitutional”
debt of public corporations and COFINA. The GDB, by serving as a conduit for transferring
resources between the central government and other public entities, also weakened the effective
distinction between “constitutional” and “extraconstitutional” debt.77 Moreover, some have
contested whether some post-2012 debt issues conformed to the 15% limit, as wel as the reach of
clawback measures used to bolster resources for payment of GO debt. Interpretations of those
constitutional limits have shaped much of the island’s public finance policy as wel as PROMESA
Title III litigation, which later sections describe.78
PROMESA Enacted in 2016 to Address the Crisis
PROMESA (P.L. 114-187), as noted above, established two debt adjustment processes and a
Financial Oversight and Management Board for Puerto Rico, among other provisions.79 Title II of
PROMESA endowed the FOMB with wide authorities, while the governor and legislature of
Puerto Rico retained substantial control over public priorities, within the constraints of Board-
certified fiscal plans and other PROMESA provisions.

75 T his limit was interpreted as “15% of the average annual revenues raised under the provisions of Commonwealth
legislation and deposited into the treasury (… ‘internal revenues’) in the two fiscal years preceding the fiscal year of
such proposed issuance. Internal revenues consist principally of income taxes, sales and use taxes (other than those
assigned to COFINA) and excise taxes.” GDB, Commonwealth Statement, December 18, 2016, p. 177.
76 P.R. Op. Sec. Just. 1974-15, 1974 WL 326062 (P.R. Atty. Gen.). Also see Carlos Colón De Armas, “La Constitución
de Puerto Rico y Su Requisito de un Presupuesto Balanceado,” [Puerto Rico’s Constitution and its Balanced Budget
Requirement], Law Review of the University of Puerto Rico , vol. 85, no. 3 (2016), pp. 819-832; and Sergio M.
Marxuach, “ T he Endgame: An Analysis of Puerto Rico’s Debt Structure and the Arguments in Favor of Chapter 9,”
Center for a New Economy working paper, November 30, 2015, http://bit.ly/2aBM7X3.
77 Arturo C. Porzecanski, “T he Government Development Bank: At the Heart of Puerto Rico’s Financial Crisis,”
American University working paper, September 18, 2014, http://auapps.american.edu/aporzeca/www/
T he%20GDB%20at%20the%20Heart%20of%20Puerto%20Ricos%20Financial%20Crisis.pdf .
78 For instance, see “ Restructuring COFINA and GO Bonds.”
79 See CRS Report R44532, The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R.
5278, S. 2328), coordinated by D. Andrew Austin.
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Oversight Board Appointments and Organization
The Oversight Board plays a central role in the restructuring process. At the end of August 2016,
President Obama appointed six members from nomination lists compiled by congressional
leaders and a seventh of his own choosing.80 The Puerto Rico governor was empowered to
appoint a nonvoting representative to the Board. The Board chose José B. Carrión, an island
insurance broker, as chair.81
Litigation questioning the Board’s compliance with the U.S. Constitution’s Appointments Clause
delayed the renomination or replacement of the original members, whose three-year terms
expired in August 2019. The Supreme Court rejected those chal enges in June 2020, clearing the
way for new nominations and appointments.82
The Oversight Board chooses which instrumentalities wil be “covered.”83 The Board can require
the CPR government and covered instrumentalities to submit fiscal plans and budgets, which are
subject to Board approval. In September 2016, the Oversight Board listed the CPR government as
a covered territory and 62 public corporations and other entities as covered instrumentalities.84
The Board also represents covered entities in debt restructuring processes set up by PROMESA.
PROMESA Established Two Paths to Restructure Debt
PROMESA’s Title III establishes a debt restructuring process that draws on Chapters 9 and 11 of
the U.S. Bankruptcy Code.85 Title VI establishes a debt restructuring process for voluntary
collective action agreements, similar to procedures used in some sovereign debt negotiations.
Chief Justice John Roberts selected U.S. District Court Judge Laura Taylor Swain to oversee
PROMESA Title III processes in proceedings in San Juan and New York.
Chapter 9 of the U.S. Bankruptcy Code86 and Debt Restructuring under
PROMESA Title III
Congress first enacted a municipal bankruptcy law during the Great Depression of the 1930s to al ow local
governments to reorganize their debts under the supervision of a federal court.87 State governments cannot file

80 White House, “ President Obama Announces the Appointment of Seven Individuals to the Financial Oversight and
Management Board for Puerto Rico,” press release, August 31, 2016, https://obamawhitehouse.archives.gov/the-press-
office/2016/08/31/president -obama-announces-appointment-seven-individuals-financial.
81 Mr. Carrión’s relatives have served in various leadership roles in Banco Popular, the island’s largest bank. Guillermo
A. Baralt, Tradition into the Future: The First Century of the Banco Popular de Puerto Rico: 1893 -1993 (San Juan:
Banco Popular, 1993). José Carrión was brother-in-law of Pedro Pierluisi Urrutia, Resident Commissioner at the time.
82 Financial Oversight and Management Bd. for Puerto Rico v. Aurelius Investment, LLC, 590 U. S. ___ (2020),
https://www.supremecourt.gov/opinions/19pdf/18-1334_8m58.pdf.
83 PROMESA §101(d)(1).
84 Oversight Board, “Covered Entities List,” November 18, 2016, https://drive.google.com/file/d/
1D37UiofV0T 5s1Q4J54vs3xX_ArGF9532/view.
85 See the appendix of CRS Report R44532, The Puerto Rico Oversight, Management, and Economic Stability Act
(PROMESA; H.R. 5278, S. 2328), coordinated by D. Andrew Austin, for a listing of Bankruptcy Code provisions
incorporated into T itle III.
86 See CRS Report R45137, Bankruptcy Basics: A Primer, by Kevin M. Lewis; and CRS Legal Sidebar LSB10116,
When the City Goes Broke: Pensions, Retirees, and Municipal Bankruptcies, by Kevin M. Lewis.
87 U.S. Courts, “Chapter 9—Bankruptcy Basics,” https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-
basics/chapter-9-bankruptcy-basics. Also see Michael W. McConnell and Randal C. Picker, “ When Cities Go Broke: a
Conceptual Introduction to Municipal Bankruptcy,” University of Chicago Law Review, vol. 60(2), spring 1993, pp.
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for bankruptcy, but may al ow—or bar—their municipalities to seek protection from creditors under provisions of
Chapter 9 of the Bankruptcy Code. The code defines “municipality” as a “political subdivision or public agency or
instrumentality of a State,” which includes not only towns and cities, but also school districts, utility districts, and
public authorities responsible for roads, bridges, water, sewers, and other publicly provided services.88
A municipality may only receive Chapter 9 protections if several conditions are met: its state government
approves; it is insolvent; it wishes to implement a “plan of adjustment”; and it negotiates with creditors in good
faith or demonstrates such negotiations are impracticable.89 A municipality’s petition stays creditors from taking
action to col ect debts, within certain limits and subject to certain chal enges. A bankruptcy court, however,
cannot control a municipality’s regular operations, with some narrow exceptions.90 A municipality’s final plan of
adjustment, typical y the result of negotiations with creditor groups, is subject to a federal judge’s confirmation.
The PROMESA Title III process largely fol ows procedures of Chapter 9 of the Bankruptcy Code, although it adds
some requirements and omits others.91 First, Title III uses the terms “covered territory”—meaning Puerto Rico—
and “covered territorial instrumentalities” rather than “municipality.” Second, Title III, unlike Chapter 9, does not
require insolvency as a prerequisite to seeking protection from creditors. Other differences are that the Oversight
Board decides which public entities are covered territorial instrumentalities, chooses whether they can seek debt
relief, and represents those entities through the Title III process.92 PROMESA requires formulation and
certification of Fiscal Plans for covered entities,93 which are necessarily integrated with debt restructuring plans.
Filing a Title III relief petition triggers an initial stay of litigation, although creditors may chal enge the petition
afterward.94
Major Title III cases have involved multiple issuers of debt because those entities’ fiscal relations were entwined,
which has complicated negotiations with creditor representatives. The Oversight Board has, with the approval of
the Title III court, used its authority to appoint agents to represent interests of bondholders and other creditors.95
The court also appointed a mediation team headed by Judge Barbara Houser to oversee negotiations.96 A plan
support agreement (PSA) outlines terms of negotiations and may be modified as additional parties sign on or as
terms shift.
The Oversight Board is charged with proposing a plan of adjustment to implement negotiated terms of the
restructuring. That plan may involve proposals to modify Puerto Rican laws, regulations, and fiscal plans. The
Puerto Rican government and legislature retain broad powers to control public operations aside from other
PROMESA strictures.97 Obtaining legislative or regulatory changes consistent with the plan of adjustment is one
prerequisite of court confirmation of the plan.98

425-495.
88 11 U.S.C. §101(40).
89 T hat condition also may be met by reaching agreement with creditors holding a majority of claims in each affected
class, or if the municipality reasonably believes a creditor may try to obtain a preferential transfer. 11 U.S.C.
§109(c)(5).
90 11 U.S.C. §904.
91 For a list of provisions referenced in PROMESA T itle III, see Appendix B of CRS Report R44532, The Puerto Rico
Oversight, Managem ent, and Economic Stability Act (PROMESA; H.R. 5278, S. 2328) , coordinated by D. Andrew
Austin.
92 PROMESA §§206, 304, 312, 315; 48 U.S.C. §§2146, 2164, 2172, 2175.
93 PROMESA §201; 48 U.S.C. §2141.
94 PROMESA §304; 48 U.S.C. §2164.
95 PROMESA §104; 48 U.S.C. §2124. Also see Stipulation and Order Approving Procedure to Resolve
Commonwealth-COFINA Dispute, In re CPR, case 17-03283-LTS, August 10, 2017, https://cases.primeclerk.com/
puertorico/Home-DownloadPDF?id1=NzAwNDI5&id2=0.
96 In re: CPR, case 17-03283-LTS, Order Appointing Mediation Team , June 23, 2017, https://cases.primeclerk.com/
puertorico/Home-DownloadPDF?id1=NjU3Njgy&id2=0. T he team was appointed under terms of 11 U.S.C. §105.
Barbara Houser had been chief bankruptcy judge of the U.S. Bankruptcy Court for the Northern District of T exas.
97 PROMESA §§303, 314; 48 U.S.C. §§2163, 2174.
98 PROMESA §314; 48 U.S.C. §2174(b)(5).
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The Oversight Board, as agent of the debtor, must file a disclosure statement for a plan of adjustment to inform
creditors.99 If the Title III court holds that the disclosure statement is adequate, creditors vote on the plan of
adjustment. Creditors holding the same or similar types of debt or claims are divided into classes, as specified in
the plan of adjustment. Creditors within classes whose claims would be impaired by the plan vote to approve or
reject it. Approval of at least one class of impaired creditors is required. Other requirements for confirmation by
the Title III court include that the plan was proposed in good faith, that it is feasible and in the best interests of
creditors, and that it conforms to a Board-certified fiscal plan.100 After approval, creditors are compensated
according to the plan, in cash, in new bonds, or in other ways, equal to payment in ful , nothing, or some
intermediate amount.
Restructuring COFINA and GO Bonds
Disputes over the legal and constitutional foundation for tax-backed bonds and for certain other
bonds have played a central role in Puerto Rico’s debt restructuring, even before PROMESA’s
enactment. In particular, controversies over the relative priority of GO debt claims and claims of
sales-and-use-tax-backed COFINA debt split investor groups.
Some suspected that issuing COFINA bonds sidestepped a limitation on debt issuance in the
Puerto Rico Constitution, an accusation denied by others.101 COFINA bonds were sold as
“extraconstitutional” debt, meaning that bond proceeds and tax revenues supporting debt service
were not to be considered as “available resources” to the CPR. Bond documents asserted that
COFINA proceeds were therefore protected from “clawback,” that is, the invocation of a
provision of the Puerto Rican Constitution prioritizing payment of GO debt service.102 While the
Puerto Rican government obtained opinions from mainland law firms and the Puerto Rican
Attorney General that COFINA funds would not be subject to clawback, at least one mainland
law firm partner expressed doubt that a court would bar clawback of COFINA funds—an opinion
not shared with investors.103 In 2009, bond filings began to note, in general terms, the potential
legal risks presented by COFINA’s structure.104
Some major mutual funds, which had bought Puerto Rico securities at par when issued before the
island’s fiscal chal enges became evident, sharply reduced their holdings of the island’s public
debt in late 2013 and 2014, prompting sharp drops in bond prices.105 A significant portion of those
sales were to hedge funds with a stronger appetite for complex debt restructuring processes.106
Many GO bondholders believed that restructuring the island’s public corporations’ debts or
clawing back COFINA revenues could help the government meet GO bond obligations,

99 PROMESA §§301, 310; 11 U.S.C. §1125.
100 PROMESA §314; 48 U.S.C. §2174(b); 11 U.S.C. §1129.
101 William Isaac, “Banks Have Huge Stake in Outcome of Puerto Rico Crisis,” American Banker, November 5, 2015,
https://www.americanbanker.com/opinion/banks-have-huge-stake-in-outcome-of-puerto-rico-crisis. T he 2018 Kobre &
Kim report claimed the GDB sought to compute the 15% debt limitation appropriately.
102 Official Statement, “Puerto Rico Sales T ax Financing Corporation Sales T ax Revenue Bonds, Series 2007B,” July
23, 2007, https://emma.msrb.org/MS261958-MS237266-MD462937.pdf.
103 Kobre & Kim LLP, Final Investigative Report, August 20, 2018, https://drive.google.com/file/d/19-
lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view, pp. 160-161, 164-165, 174-175.
104 Ibid., pp. 187-188.
105 Bond Buyer, “Oppenheimer, Franklin Cut Puerto Rico Debt Holdings Amid Rally,” September 12, 2018.
106 Matt Wirz, Andrew Scurria, and Heather Gillers, “Bond Funds Dump Puerto Rico: Investor Exodus from Puerto
Rico Built Speed in October,” Wall Street Journal, October 25, 2017, https://www.wsj.com/articles/bond-funds-dump-
puerto-rico-1508929380.
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prompting contention with COFINA bondholder groups.107 Conflicts also emerged between
senior COFINA bondholders, which included several mainland financial institutions and hedge
funds, and junior COFINA bondholders, who tended to be individual residents of Puerto Rico.108
Much of the COFINA-GO litigation included coalitions of major bondholders, such as the Ad
Hoc Group of Puerto Rico GO Bondholders, the COFINA Senior Bondholders Coalition, and the
Bonistas del Patio, a group claiming to represent island-based junior COFINA bondholders.109
Three bond insurers (Ambac, National Public Finance, and Assured Guaranty), also known as
monolines, also participated actively in negotiations and litigation.110 These groups played a role
in congressional deliberations that led to PROMESA’s enactment.
The constitutional fiscal provisions became more salient as the prospect of a default of Puerto
Rico’s government loomed, triggering heightened tensions among bondholders. In July 2016, a
group of GO bondholders sued then-Governor García Padil a to demand a clawback of COFINA-
pledged revenues. In April 2017, a federal appeals court held that PROMESA stay provisions
applied.111 That suit and other litigation, however, convinced the Oversight Board that the GO-
COFINA dispute needed to be resolved through the PROMESA Title III process.112
New Governor Inaugurated in January 2017
In January 2017, Governor Ricardo Rossel ó Nevares succeeded Governor García Padil a, who
did not seek reelection.113 The new governor took steps to restructure the island government,
including setting up FAFAA,114 which took over financial management roles from the GDB.
Rothschild & Co. were brought in to replace previous restructuring advisors.115 The new governor
abandoned the PREPA RSA and revamped PREPA’s governance by letting the chief restructuring
officer’s contract lapse and replacing the PREPA board appointed in 2017 with his own

107 Michael Cembalist, “Passage to Puerto Rico,” J.P. Morgan, Eye on the Market, July 11, 2016,
https://www.jpmorgan.com/directdoc/passagetopuertorico.pdf.
108 Joanisabel González, “COFINA Bondholders Head to Boston,” El Nuevo Día, March 16, 2017,
https://www.elnuevodia.com/english/english/nota/cofinabondholdersheadtoboston-2301236/.
109 Joel Cintrón Arbasetti and Carla Minet, “Old Colleagues Gather in a Group that Requires Puerto Rico to Pay the
Debt,” Center for Investigative Journalism, October 24, 2017, http://periodismoinvestigativo.com/2017/10/old-
colleagues-gather-in-a-group-that -requires-puerto-rico-to-pay-the-debt/. Joel Cintrón Arbasetti and Carla Minet, “ Map
of the Players and their Positions in the Puerto Rico Debt Game,” Center for Investigative Journalism, July 23, 2015,
http://periodismoinvestigativo.com/2015/07/map-of-the-players-and-their-positions-in-the-puerto-rico-debt-game/.
110 Heather Gillers, “ Bond Insurers Prepare for the Worst in Puerto Rico,” Wall Street Journal, June 30, 2016.
111 Order and Opinion, Lex Claims, LLC, et al. v. Garcia-Padilla, et al, case 17-1241, April 4, 2017,
media.ca1.uscourts.gov/pdf.opinions/17-1241P-01A.pdf.
112 Jaresko Declaration, In re: COFINA, p. 10, January 12, 2019, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=OT AxNzgz&id2=0.
113 His father, Pedro Rosselló González, served as governor of Puerto Rico from 1993 until 2001. Former Governor
García Padilla supports maintaining Puerto Rico’s current status. Former Governor Rosselló Nevares and current
Governor Pedro Pierluisi Urrutia advocate statehood for Puerto Rico. Divergent views on Puerto Rico’s political status
have traditionally distinguished the island’s political parties in the postwar era.
114 Act 2 of 2017, January 18, 2017, and Oversight Board, “Covered Entities List,” November 18, 2016,
https://drive.google.com/file/d/1D37UiofV0T 5s1Q4J54vs3xX_ArGF9532/view.
115 Eric Platt, “ Rothschild to Advise Puerto Rico on $69bn Debt Restructuring,” Financial Times, January 18, 2017,
https://www.ft.com/content/b00acb45-341b-3501-888a-4685fc9ee4e6.
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appointees.116 Rossel ó Nevares also disbanded a commission set up by his predecessor to audit
the island’s public debts.117
Oversight Board Files PROMESA Title III Petitions in May 2017
PROMESA required the Oversight Board to take several steps to restructure debts. In an initial
step, as noted above, the Board listed the CPR and the bulk of the island’s public corporations as
covered instrumentalities under terms of PROMESA.118 That designation required the governor to
draft fiscal plans for the CPR and covered instrumentalities, whether or not the instrumentalities’
debts were to be restructured. Fiscal plans and budgets are subject to certification by the Board,
which can impose its own plan if the governor’s draft is deemed inadequate.
Where the Board viewed debt restructuring as necessary, the next step was to petition a federal
district court to initiate PROMESA Title III proceedings. The subsequent steps that put the GO-
COFINA dispute into the Title III court followed in rapid succession in late April and early May
2017. Puerto Rico enacted a measure to claw back COFINA funds to the general fund,119
triggering a default declaration on COFINA bonds on May 4, 2017.120 A day before, on May 3,
2017, the FOMB filed a petition to restructure CPR’s obligations under Title III of PROMESA.121
On May 5, 2017, the Board then filed a Title III petition for COFINA,122 and on May 21, 2017, it
filed a petition for HTA.123 The Board also initiated a Title III process for PREPA on July 2, 2017,
and thus rejected the previous RSA framework.124
The Board also used PROMESA Title VI, which sets out a different procedure, to settle debts and
operations of the GDB. The Board approved the GDB’s restructuring petition in July 2017, and
the bank was dissolved in November 2018.125 Most of its functions, as noted above, were taken
over by the FAFAA.

116 T he PREPA RSA of November 2015 specified that the Puerto Rican governor choose a board of three members
from a list “of at least 10 candidates prepared by a recognized firm in the field of search for executive candidates,
according to objective criteria that take into account professional and educational backgrounds.” See GDB,
Restructuring Support Agreement, November 2, 2015, p. 98, at http://www.gdb-pur.com/investors_resources/
documents/PREPA-RSA-RestructuringSupportAgreement -FullyExecuted.pdf. Rosselló’s 2016 campaign treasurer was
appointed chair of the PREPA board. See Javier Balmaceda, “Puerto Rico ’s PREPA Privatization: A Sale T oo P rivate,”
Forbes, April 3, 2018, https://www.forbes.com/sites/debtwire/2018/04/03/puerto-ricos-prepa-privatization-a-sale-too-
private/?sh=4a5358a27490.
117 Gloria Ruiz Kuilan, “Rosselló Elimina la Comisión para la Auditoría de la Deuda,” El Nuevo Día, April 19, 2017,
https://www.elnuevodia.com/noticias/politica/notas/rossello-elimina-la-comision-para-la-auditoria-de-la-deuda/. See
further discussion in the section “ An Audit of Puerto Rico’s Public Debt .”
118 PROMESA §101(d)(1)(A).
119 Fiscal Plan Compliance Act, Act 26-2017, April 29, 2017.
120 Robert Slavin, “COFINA T rustee Declares Default; Seniors Call for End of Subordinate Payments,” Bond Buyer,
May 10, 2017. Also see Bank of New York Mellon, letter to COFINA T rustees, May 4, 2017,
https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=NjIwMzQ1&id2=0.
121 Financial Oversight and Management Board (FOMB), Petition for Relief on Behalf of the Commonwealth of Puerto
Rico, May 3, 2017, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=NjE3NjAy&id2=0.
122 FOMB, Petition for Relief on Behalf of COFINA, May 5, 2018, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=NjE3ODQx&id2=0.
123 FOMB, Petition for Relief on Behalf of HTA, May 21, 2017, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=NjIzMjkw&id2=0.
124 FOMB, Petition for Relief on Behalf of PREPA, July 2, 2017, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=NzA4NjU1&id2=0.
125 In re: GDB, Findings of Fact, Conclusions of Law, and Order, November 7, 2018, https://document.epiq11.com/
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Judge Swain then directed the Oversight Board to resolve disputes among GO and COFINA
creditors through confidential mediation overseen by a senior bankruptcy judge. On August 10,
2017, Judge Swain appointed the Unsecured Creditors Committee (UCC) to represent
Commonwealth interests and Bettina Whyte to represent COFINA interests.126 Negotiations were
surrounded by a cascade of litigation by various interested parties.127
Hurricanes Irma and María Hit Puerto Rico in September 2017
Two Category 5 hurricanes soon stal ed progress in those negotiations. In September 2017,
Hurricane Irma skirted the northern edge of Puerto Rico, and two weeks later, Hurricane María
passed over the whole island, leaving major damage in its wake.128 The hurricanes affected the
debt restructuring process in several ways. First, the island’s electrical grid was disabled, which
crippled many water and sewer facilities, as wel as most manufacturing facilities and
transportation systems. Health, housing, and incomes also were affected. Second, the disaster
responses commanded the attention of public officials and others. The hurricanes’ damage to
public infrastructure, including the island’s electrical grid, and to private businesses, including
most manufacturing facilities, prompted the Oversight Board to revise the Commonwealth’s
fiscal plan to reflect reduced economic activity and tax revenues. The Board anticipated that
federal disaster recovery funding—which it estimated would total $82 bil ion—would enhance
the ability to repay creditors in future years.129 Much of that funding, however, has been slow in
coming.130
Settling the COFINA/GO Dispute
The COFINA Senior Bondholders Coalition, a coalition of hedge funds and investment groups,
played a central role in negotiations that led to a settlement of the COFINA/GO dispute over
payment priority. The coalition controlled about a third of outstanding senior COFINA debt and
substantial amounts of COFINA subordinate (junior) bonds. In June 2015, the coalition retained
the law firm Quinn Emanuel and lead counsel Susheel Kirpalani.131

document/getdocumentbycode/?docId=3427095&projectCode=PR4&source=DM.
126 Stipulation and Order Approving Procedure to Resolve Commonwealth -COFINA Dispute, In re FOMB as
Representative of Commonwealth of Puerto Rico, case 17-03283-LTS, August 10, 2017, https://cases.primeclerk.com/
puertorico/Home-DownloadPDF?id1=NzAwNDI5&id2=0. Bettina Whyte was managing director and senior advisor at
Alvarez & Marsal, a New York financial advisory firm.
127 At this writing in February 2021, the Commonwealth T itle III docket contained over 15,800 filings—a rough
indicator of the complexity of the case.
128 John P. Cangialosi, Andrew S. Latto, and Robbie Berg, “T ropical Cyclone Report: Hurricane Irma,” Nationa l
Hurricane Center, AL112017, June 30, 2018, https://www.nhc.noaa.gov/data/tcr/AL112017_Irma.pdf; and Richard J.
Pasch, Andrew B. Penny, and Robbie Berg, “T ropical Cyclone Report: Hurricane Maria,” National Hurricane Center,
February 14, 2019, AL152017, https://www.nhc.noaa.gov/data/tcr/AL152017_Maria.pdf.
129 Oversight Board, Commonwealth Revised Fiscal Plan, October 23, 2018, p. 17, https://drive.google.com/file/d/
17ca0ALe7vpYn0jEzTz3RfykpsFSM0ujK/view.
130 See CRS Report R46609, The Status of Puerto Rico’s Recovery and Ongoing Challenges Following Hurricanes
Irm a and María: FEMA, SBA, and HUD Assistance, coordinated by Elizabeth M. Webster.
131 Second Supplemental Verified Statement of the Senior COFINA Bondholders’ Coalition Pursuant to Federal Rule
of Bankruptcy Procedure 2019, case 17-03283-LTS, docket #1552, October 26, 2017. Also see Michelle Bocanegra,
“MVP: Quinn Emanuel’s Susheel Kirpalani,” Law360, November 30, 2018, https://www.law360.com/articles/
1094205/mvp-quinn-emanuel-s-susheel-kirpalani. In that interview, UCC lead counsel Luc Despins is described as a
mentor.
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After sel ing off about half of their COFINA junior bonds after Hurricane María hit, the coalition
increased its holdings of those bonds from $709 mil ion in October 2017 to $2.222 bil ion at the
end of October 2018, as shown in Figure 3.132 Over that interval—October 2017 to October
2018—the price of COFINA senior bonds rose from about 35% to over 80% of par, and junior
bonds rose from about 10% of par to about 50% of par.
On May 14, 2018, the COFINA Senior Bondholders Coalition proposed a framework to settle the
GO/COFINA dispute,133 which the Oversight Board reportedly rejected as offering the CPR no
“meaningful debt relief.”134 Further negotiations led to an agreement in principle, announced on
June 5, 2018, that would al ocate 53.65% of the Pledged Sales Tax Base Amount—set at 5.5% of
the 10.5% Sales & Use Tax—to COFINA.135 Judge Swain, according to media reports, viewed
the draft agreement favorably, as it could sidestep cal s to rule on the validity of COFINA’s legal
structure under the Puerto Rico Constitution.136
Under the proposed framework, existing COFINA bonds would be exchanged for new securities
designed to reduce debt service obligations over the next decade, but carrying stronger investor
protections. Certain COFINA creditors were to collect about $1.2 bil ion held in escrow.137 The
reduction in COFINA claims al owed the CPR government a greater share of sales and use tax
revenues, which, in principle, would benefit GO bondholders. Island taxpayers also appear to
have benefited from a reduction of certain tax rates enacted in December 2018.138

132 See the corresponding 7th verified statement, November 16, 2018, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=ODk5ODcw&id2=0.
133 BusinessWire, “ COFINA Senior Bondholders Coalition Discloses Participation in Constructive Settlement
Discussions to Help Resolve Puerto Rico’s Debt Crisis,” May 14, 2018, https://www.businesswire.com/news/home/
20180514005558/en/.
134 Eva Lloréns Vélez, “GO-COFINA Bondholder Sides Head for Shootout,” Caribbean Business, July 13, 2018,
https://caribbeanbusiness.com/go-cofina-bondholder-sides-head-for-shootout/.
135 Michelle Kaske, “Puerto Rico’s Sales-T ax Bonds Soar on Optimism About Deal,” Bloomberg News, June 8, 2018,
https://www.bloomberg.com/news/articles/2018-06-08/puerto-rico-cofina-investors-get-half-sales-tax-in-proposed-
deal.
136 Eva Lloréns Vélez, “GO-COFINA Bondholder Sides Head for Shootout,” Caribbean Business, July 13, 2018.
137 Puerto Rico Fiscal Agency and Financial Advisory Authority (FAFAA), COFINA Fiscal Plan, p. 5, September 7,
2018, http://www.aafaf.pr.gov/assets/cofina-fiscal-plan-090718.pdf.
138 Act 257-2018, enacted December 18, 2018. See Price Waterhouse Coopers, “Puerto Rico Adopts Significant
Amendments to its Income T ax Code,” January 2019, https://www.pwc.com/us/en/services/tax/library/insights/puerto-
rico-significant -amendments-to-income-tax-code.html.
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Figure 3. COFINA Holdings of Senior COFINA Bondholders Coalition

Source: CRS calculations using Rule 2019 filings on the COFINA docket.
Notes: Baupost, headed by Seth Klarman, controls the investment vehicles named Decagon Holdings. See David
Dayen, “We Can Final y Identify One of the Largest Holders of Puerto Rican Debt,” Intercept, October 3, 2017,
https://theintercept.com/2017/10/03/we-can-final y-identify-one-of-the-largest-holders-of-puerto-rican-debt/.
The Oversight Board announced a deal with major COFINA creditors in August 2018.139 Once
the Puerto Rican government enacted conforming legislation,140 the Oversight Board certified a
revised COFINA fiscal plan.141 On October 18, 2018, the Board filed a disclosure statement that

139 FOMB, “Oversight Board Reaches Deal with COFINA Bondholders: Proposed COFINA Bondholders Agreement
to Save Puerto Rico over $17 Billion,” August 8, 2018, https://drive.google.com/file/d/
1xGS5aCydodT T GhhCtk3OhHLFD6I_Qnny/view.
140 Act 241 of 2018, November 15, 2018, http://www.lexjuris.com/lexlex/Leyes2018/lexl2018241a.htm.
141 FOMB, Unanimous Written Consent Certifying COFINA’s Fiscal Plan, October 19, 2018, https://drive.google.com/
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detailed the proposed restructuring of COFINA debt.142 On November 27, 2018, the Title III court
approved143 a revised disclosure statement,144 clearing the way for a vote among classes of
COFINA bondholders for approval.145 The UCC, representing the interests of Commonwealth
creditors, conditional y approved the agreement in early November 2018 after having complained
about the settlement.146
Many junior COFINA bondholders contended the settlement was unfair. Some al eged that key
Senior COFINA Bondholders Coalition members had purchased enough junior bonds to attain a
decisive position in settlement negotiations, to the advantage of senior COFINA bondholders and
the detriment of junior COFINA bondholders.147 Smal investors also complained about $332
mil ion in consummation costs awarded to major investors involved in negotiations.148 Several
smal COFINA bondholder suits were dismissed by the Title III court. The U.S. Court of Appeals
for the First Circuit upheld those dismissals on February 8, 2021.149 In a separate case, that court
upheld on March 2, 2021, the dismissal of claims of Puerto Rico credit unions—cal ed
cooperativas—who contended they were pressured to buy COFINA junior bonds.150
Oversight Board, Title III Court Move to Wrap Up COFINA Restructuring
Arthur González, a member of the FOMB, argued that the proposed COFINA agreement was a
prudent compromise, which avoided litigation that could end with a judgement that
would either find that COFINA and its bondholders own the island’s sales tax revenues,
which would sharply reduce the funds available for other constituencies, or that the
Commonwealth has the right to claw them back. A loss for the Commonwealth would be
a particularly devastating setback, costing the local government billions of dollars in
reduced debt and recouped revenue over the coming decades.151

file/d/1KL0LsMGXtOaNPJ8YPKMpJCCs37uKZT 9C/view.
142 FOMB, Disclosure Statement for the Title III Plan of Adjustment of the Debts of Puerto Rico Sales Tax Financing
Corporation, Case No. 17-BK-3284 (LT S), October 18, 2018, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=ODk3NzAy&id2=0. Bankruptcy Code §1125 incorporated into PROMESA (§301(a)) required the
Oversight Board to file a disclosure statement ahead of voting by creditors to accept or reject the plan.
143 In re CPR and In re COFINA, Order Approving Disclosure Statement, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=OT AwMT E5&id2=0.
144 FOMB, Disclosure Statement for the Amended Title III Plan of Adjustment of the Debts of Puerto Rico Sales Tax
Financing Corporation, Case No. 17-BK-3284 (LT S), November 16, 2018, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=ODk5NzQw&id2=0. In re CPR and In re COFINA, Disclosure Statement for the Second
Amended T itle III Plan of Adjustment, November 26, 2018, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=OT AwMDAw&id2=0.
145 A memorandum, which congressional clients may request, describes the structure of the new COFINA bond issue.
146 Robert Slavin, “COFINA Deal T akes Step Forward with Proposed Settlement,” Bond Buyer, November 6, 2018.
147 Eva Lloréns Vélez, “‘Bonistas’ T out COFINA Deal Impact on Local Capital,” Caribbean Business, October 22,
2018, https://caribbeanbusiness.com/bonistas-tout-cofina-deal-impact-on-local-capital/.
148 A list of the Consummation Cost Parties is presented as T erm Sheet Exhibit B (p. 367) of the second amended
disclosure statement of November 26, 2018. T he Consummation Cost provision is at pp. 362 -364.
149 For a summary of a hearing on four related appeals contesting the COFINA settlement, see Robert Slavin,
“COFINA $17.6B Deal Attacked in Appeals Court,” Bond Buyer, August 3, 2020. One of the judges who heard
arguments in August 2020, Juan R. T orruella, died in October 2020. Pinto-Lugo et al. v. CPR, Judgem ent and Opinion,
case 19-1181, U.S. Court of Appeals for the 1st Circuit, February 8, 2021, http://media.ca1.uscourts.gov/pdf.opinions/
19-1181P-01A.pdf.
150 Cooperativa de Ahorro y Credito v. Oversight Board, Judgement and Opinion, case 19-1391, U.S. Court of Appeals
for the 1st Circuit, March 2, 2021, http://media.ca1.uscourts.gov/pdf.opinions/19-1391P-01A.pdf.
151 Arthur J. González, “Lawful Restructuring Compromises Are Key to Puerto Rico’s Future,” Morning Consult,
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Natalie Jaresko, executive director of the Oversight Board, stated in a court filing that the
alternative to the Plan is protracted litigation . . . which could lead to an all-or-nothing
recovery for holders of either Commonwealth claims or COFINA’s Existing Securities.152
Court Approves Restructuring and Bond Exchange in February 2019
On February 4, 2019, as noted above, Judge Swain approved the COFINA settlement and
confirmed its restructuring plan,153 marking one of the largest municipal bond restructurings in
U.S. history and thus resolving the GO-COFINA dispute.154 On February 12, 2019, old COFINA
debt with a par value of $17.6 bil ion was exchanged for $12 bil ion in new COFINA bonds,
which were divided into several current-interest-bearing bonds (CIBs; i.e., normal bonds) and
capital appreciation bonds (CABs), for which bal oon payments would be due in future decades,
the last ones ending in 2058.155
Concerns over COFINA Settlement and Ethical Conflicts
Some investment firms reported significant gains from holdings of Puerto Rican public debt and
in particular, COFINA bonds.156 A group of hedge funds, which acquired COFINA bonds at
distressed prices and then spearheaded creditor negotiations, reportedly made “hundreds of
mil ions of dollars” in profits.157 Some smal er-scale bondholders complained that the exchange
was mishandled and that their interests were not protected in negotiations, from which they were
excluded.158 For instance, rounding protocols, according to some, disadvantaged investors with

November 20, 2018, https://morningconsult.com/opinions/lawful-restructuring-compromises-are-key-to-puerto-ricos-
future/. González had served as chief judge of the U.S. Bankruptcy Court for the Southern District of New York.
152 Jaresko Declaration, In re: COFINA, §§9, 67, January 12, 2019, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=OT AxNzgz&id2=0.
153 Memorandum Opinion and Order Approving Settlement between Commonwealth of Puerto Rico and Puerto Rico
Sales T ax Financing Corporation, U.S. District Court for the District of Puerto Rico, Case 17-03283, February 4, 2019,
https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT AzMDUx&id2=0.
154 T he confirmation involved one filing on the Commonwealth of Puerto Rico (CPR) docket (17-03283) and two
filings in the COFINA docket (17-03284). On the CPR docket, see Memorandum Opinion and Order Approving
Settlement between Commonwealth of Puerto Rico and Puerto Rico Sales T ax Financing Corporation, U.S. District
Court for the District of Puerto Rico, Case 17-03283, February 4, 2019, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=OT AzMDUx&id2=0. On the COFINA docket, two filings on February 4, 2019, were superseded
by amended documents filed the next day. See Amended Order and Judgment Confirming the 3 rd Amended T itle III
Plan Of Adjustment of Puerto Rico Sales T ax Financing Corporation, U.S. District Court for the District of Puerto
Rico, February 5, 2019, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT AzMjM4&id2=0. Also
see Amended Memorandum of Findings of Fact and Conclusions of Law, U.S. District Court for the District of Puerto
Rico, February 5, 2019, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT AzMjI0&id2=0.
155 Robert Slavin, “COFINA Swaps Out Bonds in Biggest U.S. Muni Restructuring,” Bond Buyer, February 12, 2019.
Seven sets of CABs mature in years ranging from 2024 through 2051. T he largest balloon payments are sch eduled for
2046 ($1.1 billion) and 2051 ($640 million).
156 Michelle Celarier, “Puerto Rican Bonds Power Hedge Fund Whitebox Advisors’ 2018 Gains: T he Bonds Were a
Bright Spot for Whitebox and Other Hedge Funds in an Otherwise Dismal Year,” Institutional Investor, January 29,
2019. Also see Michelle Celarier, “T ilden Park is Having a Big Year: Josh Birnbaum’s Firm is Up Double Digits on the
Back of a Deal for its Puerto Rico Bonds,” Institutional Investor, November 29, 2018,
https://www.institutionalinvestor.com/article/b1c1175xfxk6t1/Tilden-Park-is-Having-a-Big-Year.
157 Andrew Scurria, “Hedge Funds Bask in Puerto Rico Bond Deal: Bondholders Offer ing Debt Relief in $18 Billion
Renegotiation Gain Substantial Profits,” Wall Street Journal, February 9, 2019, https://www.wsj.com/articles/hedge-
funds-bask-in-puerto-rico-bond-deal-11549713600. In court filings, the group calls itself the Senior COFINA
Bondholders Coalition.
158 Peter Hein, Response to Request by FOMB, In re COFINA, June 4, 2019, https://cases.primeclerk.com/puertorico/
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smal er holdings and advantaged those who held major positions.159 Judge Swain dismissed
objections that smal holders were excluded from mediation, stating that individual investors were
not prevented “from advocating their positions and seeking to participate in negotiations,” that
investors were “welcome to reach out to the mediation team,” and that investors could object to
proposals resulting from mediation and other negotiations.160
Some contend that links among the Whitebox investment fund, a member of the Senior COFINA
Bondholders Coalition; the Compass funds; and McKinsey, the main consultant to the Oversight
Board, posed conflicts of interest that were not properly disclosed.161 The Board commissioned a
review that asserted that McKinsey’s investments posed no conflict, although they “could create
the appearance of a potential conflict.”162 The following day, McKinsey paid $15 mil ion to settle
claims that it failed to disclose conflicts of interest in 14 other bankruptcy cases.163
Board Pivots GO Restructuring in 2019
The resolution—apart from certain appeals—of the COFINA restructuring cleared a path to
address restructuring of GO bonds and debts of other entities closely tied to the island
government, such as the Employee Retirement System (ERS) and the Public Building Authority
(PBA). The PBA constructs buildings that are leased to agencies of the island government.
On January 14, 2019, the Oversight Board, in conjunction with its special claims committee and
the UCC, chal enged the validity of $6 bil ion (at par value) of GO bonds issued after 2011—
referred to as “late vintage GO”—such as the $3.5 bil ion 2014 issue placed with hedge funds,
al egedly issued in violation of a constitutional debt limitation.164 In May 2019, the Oversight
Board and the UCC filed over 250 avoidance action suits165 and sued bankers involved in the

Home-DownloadPDF?id1=OT EzMzcw&id2=0.
159 Michelle Kaske, “Puerto Rico Bondholders Fume for Being Shortchanged in Swap,” Bloomberg, February 22, 2019,
https://www.bloomberg.com/news/articles/2019-02-22/puerto-rico-investors-fume-as-debt-swap-leaves-some-
shortchanged.
160 In re: CPR, Omnibus hearing, March 4, 2020, pp. 213-214, https://cases.primeclerk.com/puertorico/Home-
DownloadPDF?id1=OT YwMT E1&id2=0.
161 Michelle Celarier, “T he Story McKinsey Didn’t Want Writt en,” Institutional Investor, July 8, 2019,
https://www.institutionalinvestor.com/article/b1g5zjdcr97k2y/The-Story-McKinsey-Didn-t-Want-Written. See Figure
3 for a summary of Whitebox holdings of COFINA bonds. Also see Mary Williams Walsh, “ McKinsey Advises Puerto
Rico on Debt. It May Profit on the Outcome,” New York Tim es, September 26, 2018.
162 In re: CPR, Informative Motion Regarding Publication and Filing of Final Investigative Report: McKinse y & Co.,
February 18, 2019, https://drive.google.com/file/d/1avv872k0XNonEiN9x0UzNUCUYDtYkqOd/view?usp=drivesdk.
163 In re: Westmoreland et al., Mediated Settlement Term Sheet between the U.S. Trustee Program and the McKinsey
Entities, U.S. Bankruptcy Court, Southern District of T exas, Houston Division, February 19, 2019,
https://www.justice.gov/opa/press-release/file/1133251/download. Also see Peter Wells, “ McKinsey Agrees to $15M
Settlement over Bankruptcy Disclosures,” Financial Times, February 19, 2019.
164 Urgent Motion of the FOMB, Case 17-BK-3283 (LT S), January 14, 2019, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=OT AyMjAz&id2=0. T he motion alleged that after 2012, issuance of GO bonds violated the
Puerto Rico’s Constitution’s Article VI Section 2 requirement that average debt service in the past two years not exceed
15% of revenues. T he motion also contended that the guaranteed debt of the Public Building Authority (PBA) and the
PBA leases to CPR agencies constituted a scheme to avoid the 15% limit. T hose claims were pulled back after
negotiations with creditors.
165 Abner Dennis, “Puerto Rico’s Debt Battles: T he Oversight Board Goes on a Suing Spree,” Little Sis webpage, June
5, 2019, https://news.littlesis.org/2019/06/05/puerto-ricos-debt-battles-the-oversight -board-goes-on-a-suing-spree/. T he
Board acted through a Special Claims Committee. See “ Commonwealth of Puerto Rico Avoidance Actions,”
https://cases.primeclerk.com/puertoricoavoidanceactions/Home-Index.
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2014 GO bond issue.166 Avoidance actions al ow a trustee to chal enge transactions involving
debtors before the filing of a bankruptcy petition.167
The Board did not explain why it chose to chal enge GO bonds backed by a constitutional
guarantee, but did not chal enge the legal and constitutional basis of COFINA bonds. One
investment analyst concluded “[t]he tacit support [by U.S. District Court Judge Swain] for the
securitized structure represented by COFINA should be a welcome development for a municipal
market that has been transitioning away from full faith and credit GO pledges and toward
dedicated revenue pledges with perfected liens.”168 A coalition of bond insurers and bondholders
filed a motion defending the validity of the GO bonds on March 21, 2019.169
2020: Oversight Board, Hedge Funds Negotiate Over GO Bonds
On May 31, 2019, after negotiations with creditors, the Oversight Board announced a Plan
Support Agreement (PSA) for GO bonds and debt issued by ERS and PBA. The PSA was
supported by the Lawful Constitutional Debt Coalition (LCDC); some other hedge funds,
including some members of the COFINA Senior Bondholders Coalition; and some retiree and
labor groups.170
The Oversight Board released an amended PSA on February 9, 2020, claiming to have the
backing of holders of $10 bil ion in GO and Public Building Authority bonds,171 followed by a
draft disclosure statement on February 28, 2020.172 The Oversight Board claimed that holders of
58% of outstanding GO and PBA debt had signed onto the PSA.173 The new PSA offered slightly
better terms for holders of GO and guaranteed debt, but worse terms for junior bonds.174 Future
debt service would fal from levels that fluctuate around $3 bil ion to $1.5 bil ion per year.
In contrast to the wrap-up of the COFINA case, the GO bond case has been delayed by a series of
obstacles. On March 27, 2020, the Title III court, at the request of the Oversight Board,
suspended consideration of the adequacy of the disclosure statement covering the proposed
restructuring of GO, PBA, and ERS debt due to the effects of the Coronavirus Disease 2019

166 In Re: CPR, Complaint, May 5, 2019, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=
OT ExMT Y2&id2=0.
167 John D. Ayer, Michael Bernstein, and Jonathan Friedland, “Overview of Avoidance Actions,” American Bankruptcy
Institute Journal, March 2004.
168 Axios Advisors Managing Partner T riet Nguyen quoted in Robert Slavin, “COFINA Money Likely to Flow Soon,”
Bond Buyer, February 5, 2019.
169 Robert Slavin, “Puerto Rico Investors Move to Defend Legality of Bonds,” Bond Buyer, March 21, 2019; PBA
Funds’, Assured’s, And QT CB Noteholder Group’s Rule 12(C) Motion for Judgment on the Pleadings, Case 18-00149-
LT S, March 21, 2019, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT A3NDEx&id2=0.
170 LCDC comprises Aristeia Capital, Farmstead Capital, FCO Advisors, GoldenT ree, Marble Ridge Capital, Monarch
Alternative Capital, T aconic Capital, and Whitebox Advisors. See Oversight Board, Am ended Disclosure Statem ent,
February 9, 2019, p. 11, https://drive.google.com/file/d/1_JApEw_dGRQCpgAVo0SaffZrVuap6WqQ/view. Golden
T ree, T aconic, and Whitebox were major members of the Senior COFINA Bondholders Coalition.
171 Oversight Board, Plan Support Agreement, February 9, 2019, p. 8.
172 Oversight Board, Disclosure Statement for the Amended Title III Joint Plan of Adjustment of the CPR, et al.,
February 28, 2020, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT Q0OTAy&id2=0.
173 In re: CPR, Omnibus hearing, March 4, 2020, p. 18, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?
id1=OT YwMT E1&id2=0.
174 Brad W. Setser, “What Exactly is in the New Agreement Between Puerto Rico’s Board and its Creditors?” Council
on Foreign Relations Blog Post, February 11, 2020, https://www.cfr.org/blog/what -exactly-new-agreement -between-
puerto-ricos-board-and-its-creditors.
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(COVID-19) pandemic.175 The Board has filed regular status reports on its activities relevant to
that case and on effects of the pandemic.176 The Board, in its December 2020 report, stated that
negotiations continue, but declined to offer details due to confidentiality restrictions.
Accusations of Insider Trading in the GO Restructuring Process
On February 25, 2020, the Title III Court received al egations of insider trading by coalitions of
hedge funds involved in GO restructuring mediation and negotiations. On the same date, the UCC
cal ed for more specific disclosures of holdings by participants in the GO mediation. For instance,
previous disclosure filings reported aggregate holdings that combined GO debt with a full faith
and credit pledge and PBA bonds that carried a CPR guarantee, distinctions that potential y
translated into different treatment in restructuring plans. On June 8, 2020, Judge Swain ordered
that creditor disclosures fully conform to Federal Rule of Bankruptcy Procedure 2019(b)
standards.177
One analysis of changes in mediation participants’ holdings as reported in amended disclosure
filings asserted that LCDC members had increased holdings of GO bonds issued after 2011—
referred to as late vintage GO bonds—while in an overlapping time period the LCDC and the
Oversight Board had sought to invalidate the late vintage bonds.178 That analysis also pointed to
bond price changes that appeared to coincide with confidential mediation sessions in mid-January
2020. Hedge funds and other institutional investors denied that their members had either traded
during restricted periods or traded on nonpublic information.179
Calls for Investigations of Alleged Insider Trading
In June 2020, Oversight Board Executive Director Natalie Jaresko testified that she was aware of
insider trading al egations, but considered those a matter for law enforcement.180 On August 5,
2020, five House Members sent a letter to the New York State Attorney General requesting an
investigation into possible violations of that state’s Martin Act, which covers a broad range of

175 In re: CPR, Order, March 27, 2020, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=
OT Q5Nzg0&id2=0.
176 Oversight Board, Status Report, May 1, 2020, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=
OT U3MjM0&id2=0. Also see Oversight Board, Status Report, December 4, 2020, https://cases.primeclerk.com/
puertorico/Home-DownloadPDF?id1=OT k2MDI5&id2=0.
177 Order Further Amending Case Management Procedures, U.S. District Court for the District of Puerto Rico, Case
17 BK 3283-LTS, June 8, 2020, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=OT U5OT U2&id2=
0.
178 Abner Dennis, “21 Vulture Funds Stalking Puerto Rico’s Central Government: Legal Challenges, Investments,
Insider T rading,” Public Accountability Initiative webpage, August 5, 2020, https://public-accountability.org/report/
the-21-vulture-funds-stalking-puerto-ricos-central-government-legal-challenges-investments-insider-trading/.
179 Robert Slavin, “Puerto Rico Board, Investment Funds Reject Court Investigation of Insider T rading,” Bond Buyer,
October 15, 2020. Also see Reply of LCDC, In re: CPR, October 15, 2020, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=OT g1NzM2&id2=0. T rading of securities by an insider while in possession of material
nonpublic information may constitute insider trading barred by federal securities law. See Cindy A. Schipani and H.
Nejat Seyhun, “Defining ‘Material, Nonpublic’: What Should Constitute Illegal Insider Information?” Fordham
Journal of Corporate & Financial Law, vol. XXI, 2016, pp. 327-378.
180 T estimony of Oversight Board Executive Director Natalie Jaresko, in U.S. Congress, House Committee on Natural
Resources, PROMESA Im plem entation During the Coronavirus Pandem ic, 116th Cong., 2nd sess., June 11, 2020, Serial
116–35, p. 97.
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securities dealings.181 Resident Commissioner Jenniffer González asked the U.S. Securities and
Exchange Commission to consider whether securities laws were violated.
On October 5, 2020, House Committee on Natural Resources Chair Raúl Grijalva and other
Members sent the Oversight Board a letter requesting an investigation into those al egations.182
On the same day, a bond insurer, National Public Finance, asked the Title III Court to investigate
insider trading and related al egations.183 Both requests were declined. The Oversight Board
demurred on an investigation, but pledged to contact the U.S. Department of Justice, explaining
that
given the investigative resources available to Department and its expertise in investigating
the conduct at issue, the Oversight Board believes the Department is better suited than the
Oversight Board to evaluate the evidence and to determine whether federal laws have been
violated. This approach will also avoid saddling the Commonwealth with a potentialy
expansive and expensive investigation.184
Judge Swain declined bond insurer National Public Finance’s motion to direct the U.S. Trustee or
another entity to conduct an investigation, writing that “neither PROMESA nor any provision of
the Bankruptcy Code that is incorporated into Title III explicitly authorizes this Court to initiate
an independent investigation along the lines of the investigation sought by National in its
Motion.”185 Moreover, Judge Swain found that “National ha[d] not proffered evidence sufficient
to support a reasonable inference that any participant in the Mediation has traded on inside
information to the detriment of counterparties or the bond market, much less to the detriment of
the Title III and Mediation processes.”
Restructuring on Hold in 2020
The final resolution to the Title III case for GO bonds and related debts was in limbo for much of
2020 for several reasons. First, the COVID-19 pandemic, as elsewhere, has disrupted normal
operations and cast in doubt previous projections of Puerto Rico’s economic and fiscal future. A
series of earthquakes hit the southwest of Puerto Rico in early 2020, further disrupting operations.
Second, al egations that hedge funds involved in negotiations had traded bonds using nonpublic
information prompted Judge Swain to order more detailed disclosures, which in turn has
prompted further litigation. Third, former Resident Commissioner Pedro Pierluisi Urrutia was
inaugurated as governor in January 2021. Changes in the governor’s office have typical y led to
major staffing changes in island agencies and public corporations.186 Fourth, some of the original
Oversight Board members have stepped down and the process of appointing new members or

181 N.Y. Gen. Bus. Law §§352, 352-c.
182 Letter of Chair Grijalva to Oversight Board Executive Director Natalie Jaresko, October 21, 2020,
https://naturalresources.house.gov/download/grijalva-house-letter-to-fomb-on-insider-trading-investigation-october-21-
2020.
183 National Public Finance Guarantee, Motion, In re: CPR, October 5, 2020, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=OT g1NzM2&id2=0.
184 Oversight Board, letter to Chairman Raul Grijalva, October 27, 2020, https://drive.google.com/file/d/10mffHf-R-
VOUfAT YZtRSWOO1GqZWDMQC/view.
185 In re: CPR, Order, October 28, 2020, https://cases.primeclerk.com/puertorico/Home-DownloadPDF?id1=
OT g2Mjgz&id2=0.
186 José Alvarado Vega, “Pierluisi, Delgado Win Puerto Rico Primaries,” Caribbean Business, August 17, 2020,
https://caribbeanbusiness.com/pierluisi-delgado-win-puerto-rico-primaries/. Pierluisi also worked as a consultant to the
Oversight Board after his term as Resident Commissioner.
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extending appointments of current members remains unfinished. Until the reappointment process
had concluded, the Board’s composition and priorities were unclear. Fifth, the pace of disaster
recovery funding, which was expected to bolster the island’s economy—and thus its ability to
service debts—in the medium term has been slow and uncertain.187 The Biden Administration has
released some of those recovery funds.188
The Oversight Board discussed proposals to revise the plan of adjustment to reflect effects of the
COVID-19 pandemic on the island economy at its October 30, 2020, public meeting. A newly
appointed member, Justin Peterson, left the online meeting, blocking a vote to modify the plan.189
Oversight Board Announces Revised GO PSA in February 2021
On October 29, 2020, Judge Swain ordered the Oversight Board to present “an informative
motion presenting a term sheet disclosing the material economic and structural features of an
amended plan of adjustment that the Oversight Board intends to propose for confirmation” by
February 10, 2021, which would cover GO debt, as wel as debts of the Public Building
Authority.190 On that date, the Oversight Board announced that it had reached an agreement in
principle with several major bondholders. Two weeks later it released the proposed amended plan
support agreement (PSA), which it filed with the Title III court on March 8, 2021.191 Table 1
compares terms of the February 2021 PSA with those of a plan discussed by the Oversight Board
in October 2020.
Although the total recovery value of the newly proposed GO settlement is higher than the plan
outlined by the Board in October 2020,192 it would be wel below that of the plan of adjustment
filed in February 2020 ($15.2 bil ion) or the creditors’ counterproposal of August 2020 ($15.3
bil ion), in part reflecting effects of the COVID-19 pandemic.193

187 See CRS Report R46609, The Status of Puerto Rico’s Recovery and Ongoing Challenges Following Hurricanes
Irm a and María: FEMA, SBA, and HUD Assistance, coordinated by Elizabeth M. Webster.
188 José A. Delgado Robles, “White House Approves $3.7 Billion to Repair PRASA: With the Newly Approved Funds,
the Federal Government has Promised More than $67.7 Billion for the Island’s Recovery and Reconstruction,
However, Only a T hird of the Money has Arrived,” El Nuevo Día, January 6, 2021, https://www.elnuevodia.com/
english/news/story/white-house-approves-37-billion-to-repair-prasa/.
189 Robert Slavin, “Puerto Rico Board Member Exercises Exit Veto,” Bond Buyer, October 30, 2020. Peterson is
managing director of the DCI Group, which had worked on behalf of GO bondholders during Governor García
Padilla’s term in office (2013-3017). José A. Delgado Robles and Joanisabel González, “Donald T rump Picks Justin
Peterson as New Oversight Board Member: T he President Announces his Intention to Appoint a Partner of a
Controversial Firm Representing Bondholders,” El Nuevo Día, October 8, 2020, https://www.elnuevodia.com/english/
news/story/donald-trump-picks-justin-peterson-as-new-oversight-board-member/.
190 In re: CPR, Order on Joint Motion of PSA Creditors, October 29, 2020, https://cases.primeclerk.com/puertorico/
Home-DownloadPDF?id1=OT g2NDIy&id2=0.
191 In re: CPR, Oversight Board, Second Amended Title III Joint Plan Of Adjustment of the Commonwealth of Puerto
Rico, et al., March 8, 2021, https://drive.google.com/file/d/1IP-znS391lEFMcg35u6flHfcndndyxec/view. Also see
Oversight Board, “Oversight Board Reaches Agreement in Principle on Debt: Creditors Holding About $7 Billion of
General Obligation and Public Building Authority Bonds Committed; Mediation Continues to Gain Support Across
Broad Spectrum of Creditors,” press release, February 10, 2021, https://drive.google.com/file/d/
149MrGro7s_q6W5tc8QoxLpwRo8NArnYR/view. Also see Oversight Board, Am ended Plan Support Agreem ent,
February 23, 2021, https://drive.google.com/file/d/15zWXi83c0EOI8Pzw2uS_lYGgxRbugBsV/vie w.
192 Espacios Abiertos, “Nueva Propuesta del Pago de la Deuda Deja a Puerto Rico sin Dinero en Efectivo en Ocho
Años [New proposal for debt service would leave Puerto Rico without cash in eight years] ,” press release, February 10,
2021, https://espaciosabiertos.org/nueva-propuesta-del-pago-de-la-deuda-deja-a-puerto-rico-sin-dinero-en-efectivo-en-
ocho-anos/.
193 See Oversight Board, Plan of Adjustment Discussion, p. 53, October 30, 2020, https://drive.google.com/file/d/
1UDwg3-wMpsRhUdDbkpGS- wuZsoWte38d/view.
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Table 1. Comparison of February 2021 PSA and October 2020 Board Proposal
Dol ar amounts in mil ions
February 2021
October 2020
Item
PSA
PSA
Difference
Cash GO
$7,024a
$5,984
$1,040
Cash PBA
$1,073
b
—
Annual fixed payment GO & COFINA Sr
$1,150
$1,050
$100
Time period
25 years
20 years
5 years
GO bond issue
$6,683
$4,980
$1,703
Capital Appreciation Bond issue
$730; rises to
$1066
$0
$730
Annual Maximum on CVI
from $200 to $400
$50
from $150 to $350
Cumulative Maximum on CVI
$3,500
$1,000
$2,500
Time period for CVI
22 years
20 years
2 years
Source: CRS analysis of CPR PSAs, Espacios Abiertos, Oversight Board, Plan of Adjustment Discussion, pp. 51-57,
October 30, 2020, https://drive.google.com/file/d/1UDwg3-wMpsRhUdDbkpGS-wuZsoWte38d/view.
Notes: CAB capital appreciation bonds are no-coupon bonds with bal oon payments near maturity. Contingent
valuation instruments (CVIs) pay creditors more if economic growth exceeds fiscal plan baseline projections.
a. Includes potential $350 mil ion contingent on revenues above benchmarks.
b. PBA terms not included in October Board proposal.
If terms of the most recent PSA were implemented, existing bonds covered by the agreement
would be exchanged for cash, new GO bonds, capital appreciation bonds (with interest only
payable in future years), and contingent valuation instruments (CVIs) that would pay creditors
extra amounts if the island’s economic growth exceeded Oversight Board projections. The mix of
new assets received would differ for each old bond, with estimated recovery rates ranging from
67.7% for the 2014 GO bond to 80.3% for pre-2011 PBA bonds, excluding CVI payments.194
Those recovery rates are wel above what market prices indicate were expected recovery rates for
much of the period of the debt restructuring, as a later section discusses.
The Oversight Board chairman claimed the proposed plan aimed at consensual agreement; that it
reflected harm to the island from hurricanes, the COVID-19 pandemic, and other natural
disasters; that it was a fair deal for creditors; and that it would be a “once and done deal.”195 The
plan also includes reductions of 2%-3% in some pension payments above certain thresholds,
which the Board contends would protect most pensioners from those reductions.196 Pension
reductions, creditor concerns, and macroeconomic uncertainties, among other considerations,
may spur opposition to the Board’s plan.197

194 Robert Slavin, “Puerto Rico Reaches Deal with Debt Holders with 14% Less Repayment,” Bond Buyer, February
23, 2021.
195 David Skeel, “Oversight Board: Right Deal for Puerto Rico Rests on Four Principles,” Bond Buyer, February 8,
2021.
196 Oversight Board, Lowering Puerto Rico’s Debt to Sustainable Levels: Plan Support Agreement with Bondholders,
February 26, 2021, p. 6, https://drive.google.com/file/d/1wT LXvJRu2GI38DRcpOWuVHX2OvT wvAVo/view.
197 Robert Slavin, “Puerto Rico Debt Restructuring Faces Several Obstacles,” Bond Buyer, March 5, 2021.
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Governor Pedro Pierluisi was quoted as stating that the agreement was a “step forward,” although
he vowed to oppose any plan that would result in reductions in public pension payments to
retirees.198 On April 12, 2021, the Oversight Board announced an agreement in principle with two
bond insurers, Assured Guaranty and National Public Finance Guarantee.199 A plan support
agreement was announced on May 5, 2021, which removes one hurdle to implementation of the
CPR PSA. The agreement involves treatment of the CPR clawback of revenues from certain
public corporations.200
Market Perspectives on Debt Restructuring
Trends in bond prices provide a window on investors’ views of the restructuring process and
proposals as they proceed through the events described in previous sections. Figure 4 shows
bond prices as a percentage of par from 2013 through 2020 for selected issues of GO bonds;
COFINA bonds; and bonds of the three largest Puerto Rican public corporations: PREPA,
PRASA, and HTA.
Bond prices, according to finance theory, reveal market expectations of the probability of default
and recovery rates—that is, the value of what bondholders would receive after default and
restructuring.201 Once the prospect of default became a certainty, bond prices then reflected
market expectations of recovery rates. Appendix B presents data on bond prices and trading
volumes for a narrower time period. Appendix C lists key dates with links to key documents.
Bond prices have changed dramatical y over the course of the debt restructuring process.202 Many
Puerto Rican bonds traded above par before mid-2013. Al of these bond prices fel sharply in
2013, reacting to the Detroit bankruptcy filing and a business press article on Puerto Rico’s fiscal
distress.203 The introduction of a local bankruptcy measure in June 2014 and the announcement
by Puerto Rico’s governor a year later that the island’s debts were “unpayable” also pushed bond
prices down.

198 Justine Coleman, “Puerto Rico Debt Restructure Plan T hreatens Public Pensions,” The Hill, March 9, 2021,
https://thehill.com/homenews/state-watch/542318-puerto-rico-debt-restructure-plan-threatens-public-pensions.
199 Oversight Board, “Agreement in Principle Summary: HT A, CCDA, and Clawback Claims,” April 12, 2021,
https://drive.google.com/file/d/1ZOE9M4oqBlFNyhgrbFpN71NW8b6-f4Pa/view.
200 Oversight Board, “Oversight Board Completes Agreement with Assured Guaranty and National Public Finance
Guarantee Corp.: Settles Asserted Clawback Claims Against the Com monwealth and Establishes Framework for a
HT A T itle III Plan of Adjustment,” press release, May 5, 2021, https://drive.google.com/file/d/
1HKvFLiAG5Wv3c3xrkGakvnC0sqI_ f8Y-/view. T he plan support agreement is available at https://drive.google.com/
file/d/1BqBUrjT k_xjtg1wEhOdnv3ul4WfUorld/view.
201 A risk-neutral investor would calculate a bond’s value as (1-α)*(present value of principal and interest payments) +
α*(recovery value), where α is the probability of default. Given that default on the bulk of Puerto Rico’s debt was
highly likely or certain by mid-2015, bond prices would then directly reflect market expectations of recovery rates.
Holders of some bonds backed by dedicated revenue streams have argued that default on those bonds was not
inevitable, although such arguments gained no traction in the T itle III court.
202 More specific allegations of insider trading are discussed in a previous section.
203 Andrew Bary, “T roubling Winds: Puerto Rico’s Huge Debt Could Overwhelm Attempts to Revive its Economy,”
Barron’s, August 26, 2013.
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Figure 4. Price Trends for Selected Puerto Rico Bonds

Source: CRS calculations based on the Municipal Securities Rulemaking Board EMMA site: https://emma.msrb.org/.
Notes: Al prices quoted as percentage of par value. CUSIPS (codes used to identify issuers and financial securities) are 2006A (74514LHN0), 2009B (74514LVW4),
2011A GO (74514LYW1), 2012A (74514LA98), 2014A NY Law GO (74514LE86), PREPA (74526QVX7), PRASA (745160QF1), HTA (745181K97), COFINA
Subordinated (74529JHN8), and COFINA Senior (74529JNX9). The first vertical grey line indicates the release of the August 2013 Barron’s article; the second is the
introduction of a local bankruptcy measure. COFINA bonds were exchanged for new bonds on February 12, 2019. Values interpolated between trade dates.
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Not al categories of debt moved to the same extent. For instance, COFINA subordinate bond
prices reacted more sharply to events of 2015 than GO bond prices, although they recovered more
ground than other bonds in the lead-up to the enactment of PROMESA at the end of June 2016.
The COFINA default in May 2017 depressed senior and especial y subordinate COFINA bonds.
The devastation left by Hurricanes Irma and María in September 2017 severely depressed almost
al Puerto Rico bond prices.204 GO bonds then traded at a quarter of par or less, while COFINA
subordinates briefly traded at about 10% of par. Prices began to recover in 2018, with the
February enactment of the Balanced Budget Act of 2018 (BBA 2018; P.L. 115-123), which
appropriated disaster relief funds for Puerto Rico and other affected areas. Prices also responded
to Oversight Board proposals in April 2018 that combined cal s for fiscal austerity with relatively
optimistic macroeconomic forecasts.
In January 2018, the Oversight Board cal ed for invalidating late vintage GO issues, causing the
older GOs to trade at a premium to the 2014 issue. The 2014 GO issue had traded above older GO
issues until Hurricane María, reflecting the New York law provision. Some of the al egations of
insider trading—discussed in “Accusations of Insider Trading in the GO Restructuring Process,”
above—center on divergences between earlier and late vintage GO bonds. Those differences
narrowed after the Oversight Board announced an Amended Plan Support Agreement for the
CPR, ERS, and PBA in February 2020.
The relationship between bond prices and estimated recovery rates in the consummated COFINA
plan and recent proposals for restructuring GO and related debts has attracted some attention.
Several activists assert that the marked recovery of bond prices after some of those prices reached
extremely low levels in fal 2017 implies that investors took advantage of island residents. The
recovery of those prices, per se, need not imply any misbehavior on the part of investors, but
could reflect a transfer of bond holdings to investors and funds more wil ing to tolerate risk, or
less adverse to litigation, or better informed about long-term prospects.
The shift in holdings from smal er bondholders to hedge funds acting within coalitions may also
play a role. Hedge funds, some contend, can serve to mitigate collection action chal enges to
enforcing creditor interests facing dispersed investors.205
What Can Puerto Rico Afford to Pay?
A “once and done deal,” as the Oversight Board chair put it, would require a manageable future
debt service burden. Capacity to service public debt depends on growth in the tax base—largely
proxied by growth of the island’s economy—as wel as the efficiency of tax administration and
the wil ingness to keep tax rates in proportion to expenditures. In other terms, debt service
capacity rests on a government’s ability to run primary surpluses; that is, having receipts running
sufficiently above non-debt-service outlays to meet debt service obligations. For each component
of debt service capacity—economic growth, tax administration, wil ingness to tax, and fiscal
constraint—reasons for both optimism and concern may exist.

204 PRASA, the water and sewer authority, was the exception, reflecting its comparatively stronger finances.
205 Marcel Kahan and Edward Rock, “Hedge Fund Activism in the Enforcement of Bondholder Rights,” Northwestern
University Law Review, vol. 103, no. 1 (winter 2009), pp. 281 -322. T hose enhanced capacities to enforce bond
covenants, the authors note, may impair interests of issuers. Some COFINA creditors argued that actions of hedge
funds impaired their interests, but were unable to persuade courts to intervene.
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Puerto Rico’s Economy Expected to Shrink
In recent decades economic growth in Puerto Rico has been uneven, if not stagnant.206 Recovery
from the 2017 Hurricanes Irma and María has been slow. Earthquakes in late 2019 and early
2020, along with the COVID-19 pandemic, also hindered economic activity. The island’s
economy, according to April 2021 Oversight Board estimates, shrank by 3.0% in 2020.207
The Board projects negligible economic growth over the next five years, as shown in Figure 5.208
The 2021 CPR Fiscal Plan projects somewhat more growth than plans from recent past years.
Growth projections that adjust for income increases due to federal COVID-19 relief measures
show stronger growth in 2021 (3.8%) and 2022 (1.5%), but weaker growth for later years. Puerto
Rico’s projected economic growth trajectory, according to Oversight Board projections, wil be
wel below growth rates expected for the U.S. economy for the years 2021-2024, although it
would nearly match the projected U.S. growth rate in 2025.
Figure 5. Projected Puerto Rican and U.S. Economic Growth Rates, 2020-2025

Source: Oversight Board, Fiscal Plan Macroeconomic Overview and Fiscal Plan, August 18, 2020; and Oversight
Board, Certified 2021 Fiscal Plan, April 23, 2021.
Notes: Puerto Rico projections use GNP, which avoids distortions in GDP measures related to tax avoidance
strategies of multinational firms with Puerto Rican subsidiaries. Puerto Rican growth rates are for the CPR fiscal
year, which starts on July 1.

206 See CRS Report R44095, Puerto Rico’s Current Fiscal Challenges, by D. Andrew Austin.
207 Oversight Board, Certified Fiscal Plan for Puerto Rico, April 23, 2021, ch. 4, https://drive.google.com/file/d/
1reetKnfKsa1uR-A0u9l3FM6PfGamHCrx/view. Growth is measured for fiscal years of the Puerto Rican government,
which start on July 1. Economic growth is measured using gross national product, which avoids distortions due to profit
shifting.
208 T estimony of Oversight Board Executive Director Natalie Jaresko, in U.S. Congress, House Natural Resources
Committee, 116th Cong., 2nd sess., hearing, PROMESA Im plem entation During the Coronavirus Pandem ic, June 11,
2020, p. 10, https://www.govinfo.gov/content/pkg/CHRG-116hhrg40637/pdf/CHRG-116hhrg40637.pdf.
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The 2021 CPR Fiscal Plan anticipates that Puerto Rico wil receive $110 bil ion in federal funds
over the coming decade, although mainland firms or contractors would receive some of that
amount. Federal and private disaster assistance is estimated to drop from $8.1 bil ion in 2019 to
$2.3 bil ion in 2020, and to rise in following years as Community Development Block Grant
Disaster Recovery (CDBG-DR), Federal Emergency Management Agency (FEMA) permanent
public assistance, and certain other federal program funds are disbursed.209
The island’s shrinking population, due to continuing net outmigration to the mainland and low
birth rates, also affects its growth prospects.210 The U.S. Census Bureau estimates that the island’s
population fel from 3.73 mil ion in 2010 to 3.16 mil ion in 2020, a decrease of 15%.211 The
Oversight Board projects that its population wil decline to 2.76 mil ion by 2026.212
The FOMB has been optimistic that structural reforms, such as changes in the island’s labor laws
to encourage higher labor participation rates and to loosen employment law restrictions and
protections, would accelerate economic growth.213
Some economists have viewed Oversight Board projections of Puerto Rico’s growth prospects
and its capacity to service debt as overly optimistic214 and note that fiscal austerity could restrain
economic growth enough to outweigh gains from proposed structural and labor market reforms.215
Although low labor participation rates have been a persistent issue in Puerto Rico,216 recent IMF
research suggests projections of faster economic growth through structural changes are often
unfulfil ed.217

209 Oversight Board, Certified Fiscal Plan for Puerto Rico, April 23, 2021, ch. 4, exhibits 12, 13, 14, pp. 31 -39,
https://drive.google.com/file/d/1reetKnfKsa1uR-A0u9l3FM6PfGamHCrx/view. Also see Sergio M. Marxuach,
“Federal Funds Anchor New Fiscal Plan,” Center for a New Economy blog, April 29, 2021, https://grupocne.org/2021/
04/29/federal-funds-anchor-new-fiscal-plan/.
210 Jennifer Hinojosa and Edwin Meléndez, Puerto Rican Exodus: One Year Since Hurricane Maria, Hunter College
Center for Puerto Rican Studies, issue brief RB2018-05, September 2018, https://centropr.hunter.cuny.edu/sites/default/
files/RB2018-05_SEPT 2018%20%281%29.pdf.
211 U.S. Census Bureau, Puerto Rico Municipios Population Totals: 2010-2020, April 30, 2021,
https://www.census.gov/programs-surveys/popest/technical-documentation/research/evaluation-estimates/2020-
evaluation-estimates/2010s-total-puerto-rico-municipios.html.
212 Oversight Board, Certified Fiscal Plan for Puerto Rico, April 23, 2021, ch. 4, exhibit 17, p. 42,
https://drive.google.com/file/d/1reetKnfKsa1uR-A0u9l3FM6PfGamHCrx/view.
213 FOMB letter to Members of Congress, November 14, 2018, https://drive.google.com/file/d/10BKVqq_YhKNT _-
tGAEaphk1QhDiy3mSX/view.
214 Pablo Gluzmann and Martin Guzman, Puerto Rico’s Debt Dilemma, Espacios Abiertos working paper, May 2019,
http://espaciosabiertos.org/wp-content/uploads/Puerto-Ricos-Debt -Dilemma-Final-Report -May-2019.pdf; and Omaya
Sosa Pascual and Luis Valentín Ortiz, “Fantasy of the Fiscal Plan for Puerto Rico,” Center for Investigative Journalism,
February 20, 2018, https://periodismoinvestigativo.com/2018/02/the-fantasy-of-the-fiscal-plan-for-puerto-rico/.
215 Pablo A. Gluzmann, Martin M. Guzman, and Joseph E. Stiglitz, An Analysis of Puerto Rico’s Debt Relief Needs to
Restore Debt Sustainability, National Bureau of Economic Research, working paper no. 25256, November 2018,
http://www.nber.org/papers/w25256. Also see Brad W. Setser, “ Could Maria’s Legacy Be a New Debt T rap for Puerto
Rico?” Council on Foreign Relations blog post, November 13, 2018, https://www.cfr.org/blog/could-marias-legacy-be-
new-debt-trap-puerto-rico.
216 María E. Enchautegui and Richard B. Freeman, “Why Don’t More Puerto Rican Men Work?: T he Rich Uncle (Sam)
Hypothesis,” in Susan M. Collins, Barry P. Bosworth, and Miguel A. Soto -Class, eds., The Econom y of Puerto Rico:
Restoring Growth (Brookings: Washington, DC, 2006).
217 Kevin Greenidge, Meredith A. McIntyre, and Hanlei Yun, Structural Reform and Growth: What Really Matters:
Evidence from the Caribbean, International Monetary Fund, working paper 16/82, April 7, 2016, https://www.imf.org/
en/Publications/WP/Issues/2016/12/31/Structural-Reform-and-Growth-What-Really-Matters-Evidence-from-the-
Caribbean-43855. T hose authors find that, among Caribbean countries, structural reforms only appear in the long te rm
and depend on investments in institutional quality that support the maintenance of reform efforts. T he IMF chief
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Effects of the 2017 hurricanes, the 2020 earthquakes, and the COVID-19 pandemic al complicate
the island’s fiscal prospects. Despite the catastrophic damage endured by the island, Executive
Director Jaresko stated that federal disaster recovery funds and insurance proceeds would
promote economic growth and raise tax collections, which would increase Puerto Rico’s ability to
repay its debt,218 in particular through the rebuilding of the island’s electric grid and generating
fleet, in part to be supported through Community Development Block Grant disaster recovery
funds. Federal outlays on permanent disaster recovery projects had been slow relative to mainland
standards, although the Biden Administration has lifted holds on those funds.219 Restructuring of
Puerto Rico’s energy sector, however, is subject to substantial implementation, operational, and
financial risks.220
Contingent valuation instruments (CVIs) added into the amended plan of adjustment proposed by
the Oversight Board in February 2021, if implemented, would provide creditors with additional
payments if Puerto Rico’s economy grew faster than the Board’s projections.
Revenue Growth and Tax Policy
Recent tax collections have exceeded projections. CPR-source revenue rose from $10.1 bil ion in
FY2018 to a projected $12.3 bil ion in FY2019. Federal-source income also rose by $3.6 bil ion
between those years.221 Revenues for the last half of calendar 2020 were stronger than
expected.222
Other concerns persist. Recent changes in federal tax laws regarding treatment of intel ectual
property and corporate taxation could present chal enges to Puerto Rico’s economic development
strategies, which historical y have relied heavily on advantageous tax treatment of corporate

economist said “it was strongly felt that if you have sufficiently flexible labour markets and product markets, labour
and capital will move freely to wherever you have the highest wages or the highest returns. But the truth is that doesn’t
happen very easily, especially when you’re talking about labour mobility.” Martin Sandbu, “Gita Gopinath: ‘Fiscal
Policy Plays an Essential Role in Recovery,’” Financial Tim es, November 19, 2020.
218 “T he fiscal stimulus from the Federal disaster recovery funds and the insurance proceeds has the impact of increased
economic growth that translates into more tax revenues for the Commonwealth. While no Federal m onies are being
used to pay debt, the Commonwealth’s new reality is that the Government will collect more revenue during the period
of the Fiscal Plan.” T estimony of Executive Director Natalie Jaresko , in U.S. Congress, House Committee on Natural
Resources, Oversight Hearing on PROMESA, 116th Cong., 1st sess., May 2, 2019, written response to Rep. Horsford’s
question 13, Ser. 116-14, https://www.govinfo.gov/content/pkg/CHRG-116hhrg36258/html/CHRG-116hhrg36258.htm.
219 U.S. Department of Housing and Urban Development (HUD), “HUD Accelerates Access to Puerto Rico Disaster
Relief Funds: Department Removes Onerous Restrictions that Limited Island’s Access to Funds, Obligates $8.2 Billion
in Federal Mitigation Funding,” press release 21-066, April 19, 2021, https://www.hud.gov/press/
press_releases_media_advisories/HUD_No_21_066. Also see HUD Office of the Inspector General, Review of HUD’s
Disbursem ent of Grant Funds Appropriated for Disaster Recovery and Mitigation Activities in Puerto Rico , report
2019SU008945I, April 20, 2021, https://www.hudoig.gov/reports-publications/investigation-summary/review-huds-
disbursement -grant -funds-appropriated.
220 See CRS Report R45023, Repair or Rebuild: Options for Electric Power in Puerto Rico , by Richard J. Campbell,
Corrie E. Clark, and D. Andrew Austin.
221 Puerto Rico Planning Board, Statistical Appendix to the FY2019 Economic Report of the Governor (Apéndice
Estadístico del Informe Económico a la Gobernador), May 2020, T able 27, http://jp.pr.gov/Econom%C3%ADa/
Ap%C3%AAndice.
222 Robert Slavin, “Puerto Rico Revenues Coming in Well Ahead of Projections,” Bond Buyer, February 18, 2021.
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income.223 Those tax incentives have led some to term Puerto Rico a tax haven.224 In July 2019,
Puerto Rico enacted a law that consolidated many of its tax incentives.225 The Oversight Board
has expressed concerns about how the CPR has awarded tax credits and incentives.226 The Puerto
Rico Treasury Department has promised to tighten controls on tax fraud.227
About one-fifth of the CPR’s revenue stems from Act 154 taxes on transactions between
multinational corporation subsidiaries based in Puerto Rico and the mainland, which often can be
credited against federal tax liabilities. In September 2019, then-Treasury Secretary Mnuchin had
pushed to phase out Act 154 taxes.228
Comparison with Heavily Indebted States
A comparison with per capita debt levels of state governments is one benchmark of Puerto Rico’s
capacity to repay debt. Puerto Rico’s post-restructuring public debts—if recent plans and
proposals go through—would leave it with per capita debt burdens somewhat above the most
highly indebted state governments. Puerto Rico’s per capita income levels, however, are wel
below those of mainland states.229 The Oversight Board, in a presentation outlining its March
2021 restructuring plan, contends that those proposals would significantly reduce Puerto Rico’s
public debt in comparison to the most heavily indebted mainland states.230
Issues for Congress
Puerto Rico’s debt restructuring processes may present policy issues concerning not only the
island, its debts, and its creditors, but also municipal finance markets more broadly. Congress
therefore might consider legislative and oversight initiatives focused not only on Puerto Rico, but
also on the wider municipal securities market.
As Puerto Rico’s public debt comprises about 2% of overal municipal debt, the consequences of
debt restructurings wil affect or have affected a significant number of investors. Many investors

223 Manuel Madrid, “How the T ax Cut Sacks Puerto Rico,” American Prospect, June 28, 2018, http://prospect.org/
article/how-tax-cut-sacks-puerto-rico. Also see Francisco Luis, “ Acts 20 & 22 Interplay With New U.S. T ax Reform ,”
Caribbean Business, February 8, 2018.
224 Abner Dennis, “ A T ax Haven Called Puerto Rico,” Little Sis, February 19, 2020, https://news.littlesis.org/2020/02/
19/a-tax-haven-called-puerto-rico/. Also see Jesse Barron, “ How Puerto Rico Became the Newest T ax Haven for the
Super Rich,” GQ, September 18, 2018, https://www.gq.com/story/how-puerto-rico-became-tax-haven-for-super-rich.
Also see T estimony of Miriam J. Ramirez, former Puerto Rico Senator, in U.S. Congress, House Committee on Natural
Resources, Subcommittee on Indian, Insular and Alaska Native Affairs, Exam ining Procedures Regarding Puerto
Rico’s Political Status and Economic Outlook, Oversight hearing, 114th Cong., 1st sess., June 24, 2015, Ser. 114-13,
https://www.govinfo.gov/content/pkg/CHRG-114hhrg95300/html/CHRG-114hhrg95300.htm.
225 Act 60 of 2019, July 1, 2019, http://www.lexjuris.com/lexlex/Leyes2019/lexl2019060.htm.
226 Oversight Board, letter to T reasury Secretary T eresita Fuentes Marimón and Secretary for Economic Development
and Commerce Manuel Laboy River, October 31, 2018, ahttps://drive.google.com/file/d/
1HWNVx0Ce6gkH4Ijy2YJfbbKtttz7MrvR/view.
227 Robert Slavin, “Puerto Rico T reasury Announces Crackdown on T ax Fraud,” Bond Buyer, February 22, 2021.
228 Robert Slavin, “Puerto Rico Will Lose Federal T ax Credits that Support 18% of Revenue,” Bond Buyer, September
12, 2019.
229 Brad Setser, “ Is Puerto Rico Back on a Path T oward Debt Sustainability?” Council on Foreign Relations blog post,
September 30, 2019, https://www.cfr.org/blog/puerto-rico-back-path-toward-debt-sustainability. Setser was a U.S.
T reasury official involved in discussions leading up to enactment of PROMESA.
230 Oversight Board, “Lowering Puerto Rico’s Debt to Sustainable Levels: Plan Support Agreement with Bondholders,”
February 26, 2021, p. 5, https://drive.google.com/file/d/1wT LXvJRu2GI38DRcpOWuVHX2OvT wvAVo/view.
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held Puerto Rican public debt through mutual funds, which general y bought bonds near or at par
when issued, and then were left with realized losses after those funds sold off those holdings.231
Judicial decisions in Puerto Rico cases could shape case law, thus affecting the future disposition
of mainland municipal debtors.
In the case of Puerto Rico, issues with federal tax exemptions, al eged violations of securities
laws, and the interpretation of provisions of the Bankruptcy Code incorporated into PROMESA
Titles III and VI may provide lessons for policymakers.
More general y, many have complained that the restructuring process has taken too long to
complete.232 Moreover, the costs of litigation, which the Oversight Board has cal ed
“extraordinarily expensive,” have been higher than expected.233 Costs of the Oversight Board’s
operations and litigation are borne by island taxpayers and residents.234
Federalism and Municipal Debt Markets
The federal government has three main instruments to shape municipal bond markets: tax
policies, securities laws, and bankruptcy laws. Requirements for exemptions from federal income
taxation play a fundamental role in municipal finance because marketing bonds without that
exemption is more difficult.235 Securities laws that mandate disclosure requirements help
investors make informed choices so that financial resources and risk-bearing can be al ocated in
an efficient way.
The federal government, to a large extent, has exercised light oversight of municipal bond
markets, which provide state and local governments with lower-cost access to capital to build
roads, schools, public buildings, and water and sewer systems, among other ends, as wel as to
help manage cash flows to match revenues and outlays.236 This reflects a division of
responsibilities between the federal government and states, which have the flexibility to
accommodate policies to local conditions. Congress, however, has greater authority to oversee
territories through its Article IV powers.
Great Depression-era securities laws were not considered to apply to municipal securities until
the early 1970s, when questionable practices by some municipal finance specialty firms and New
York City’s fiscal crisis prompted federal responses.237 The Securities Acts Amendments of 1975
(P.L. 94-29) extended the reach of federal regulations to the municipal securities market,
established the Municipal Securities Rulemaking Board (MSRB), and imposed certain antifraud
provisions.238 The act also included a provision known as the Tower Amendment that barred the

231 John Dizard, “‘Bottom-Feeding’ Hedge Funds are Big Winners on Puerto Rico Bonds,” Financial Times, November
9, 2018.
232 Robert Slavin, “Puerto Rico Bond Negotiations Slog T oward Seventh Year,” Bond Buyer, January 25, 2021.
233 Oversight Board, letter to congressional leaders, March 12, 2018, https://drive.google.com/file/d/
17oP8ppSHFN9YbprGMkjT scVmnH_cDoo3/view?usp=drivesdk.
234 PROMESA §107, 48 U.S.C. § 2127.
235 Harvey Galper, Kim Rueben, Richard Auxier, and Amanda Eng, “ Municipal Debt: What Does it Buy and Who
Benefits?” National Tax Journal, December 2014, vol. 67(4), pp. 901-924, https://www.urban.org/sites/default/files/
publication/33631/109047-municipal-debt-what -does-it-buy-and-who-benefits-.pdf.
236 Government Accountability Office, Factors Contributing to the Debt Crisis and Potential Federal Actions to
Address Them , GAO-18-387, pp. 38-40, May 9, 2018, https://www.gao.gov/products/GAO-18-387.
237 National Federation of Municipal Analysts, White Paper on Federal Securities Law Relating to Municipal
Securities, March 2008, https://www.nfma.org/assets/documents/DG.WP.securities_law_0803.doc.pdf.
238 Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S.249, S.Rept. No. 94-75,
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MSRB and SEC from requiring that municipal issuers file pre-sale financial statements.239 Some
have questioned those limits on federal regulation of municipal finance,240 although others point
to more active federal enforcement of disclosure violations.241
A 2012 SEC report included some legislative proposals for enhancing disclosure in the municipal
bond market, although it did not cal for removing Tower Amendment restrictions.242 A 2020 SEC
advisory panel discussed various means to improve the timeliness and usefulness of disclosures,
although some warned of imposing new disclosure requirements that would burden smal public
issuers.243 H.R. 4476, introduced September 24, 2019, during the 116th Congress, would have set
data standards for financial disclosure, although it would not have imposed new disclosure
standards.
The scale of Puerto Rico’s debt restructuring could conceivably lead to other modifications of
municipal finance practice. Federal bankruptcy law, which during the Great Depression was
extended to cover instrumentalities of state governments such as cities and public authorities, also
plays a role in how municipal bond contracts are structured and how investors and creditors share
risks. Past municipal bond defaults have affected how municipal bond markets operate. New York
City’s financial crisis in the mid-1970s led to stronger investor disclosure requirements, and the
early 1980s defaults of the Washington Public Power Supply System (WPPSS) led to the
expansion of bond insurance.244 In general, however, municipal defaults have been much less
frequent than corporate or individual defaults.245
Congress controls tax policy and the tax treatment of municipal securities more directly.
Modifications of the federal tax treatment of municipal securities could lead to significant
changes in government finance because of the importance that tax advantages play in marketing
those securities. For instance, in 2006, Merril Lynch advisors suggested that ERS and Merril
Lynch issue at least $7 bil ion in pension obligation bonds (POBs). Because those bonds were
ineligible for federal tax exemptions, Merril Lynch was unable to place those bonds. UBS then
sold less than half that amount, as noted above, largely purchased through its own proprietary
accounts.246 Had a larger amount of bonds been issued, the island government’s finances would

94th Cong., 1st sess., p. 41 (1975). Also see Jon R. T andler, “ Municipal Antifraud Liability Under the Federal Securities
Laws upon Issuance of T ax-Exempt Industrial Development Bonds,” Journal of Urban & Contem porary Law, vol. 24,
January 1993, pp. 193-212, https://openscholarship.wustl.edu/law_urbanlaw/vol24/iss1/7. Some contended that prior to
the 1975 act, municipal securities issuers had been subject to the antifraud provisions of the federal securities laws.
239 15 U.S.C. §78o–4(d). John T ower was then a Senator from T exas.
240 U.S. Securities and Exchange Commissioner Elisse B. Walter, A. A. Sommer, Jr. Corporate, Securities and
Financial Law Lecture, October 28, 2009, https://www.sec.gov/news/speech/2009/spch102809ebw.htm. Also see Sarah
Wynn, “Ex-SEC Chair Elisse Walter: Not Enough Progress on Muni Disclosure,” Bond Buyer, February 24, 2020.
241 Maggie Guidotti, “Seeking ‘the SEC’s Full Protection’: A Critique of the New Frontier in Municipal Securities
Enforcement,” University of Chicago Law Review, vol. 82(4), 2015, pp. 2045-2118, http://www.jstor.org/stable/
43655479.
242 Securities and Exchange Commission, Report on the Municipal Securities Market, July 31, 2012,
https://www.sec.gov/news/studies/2012/munireport073112.pdf.
243 SEC, Fixed Income Market Structure Advisory Committee meeting, February 10, 2020, pp. 132-183,
https://www.sec.gov/spotlight/fixed-income-advisory-committee/fimsac-021020-transcript.pdf.
244 Walter (2009), op. cit. Also see Beverly Hirtle, “Growth of the Financial Guarantee Market,” Federal Reserve Bank
of New York Quarterly Review, Spring 1987, p. 18, https://fraser.stlouisfed.org/title/economic-policy-review-federal-
reserve-bank-new-york-1170/spring-1987-3020/growth-financial-guarantee-market-401663.
245 S&P Global, 2017 Annual U.S. Public Finance Default Study and Rating Transitions, May 8, 2018.
246 Kobre & Kim LLP, Final Investigative Report, August 20, 2018, https://drive.google.com/file/d/19-
lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view, pp. 158-159.
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have been in even worse shape. Thus, lack of federal tax exemption helped constrain the extent of
a strategy that an independent review concluded “was so badly structured that, rather than
yielding profits, it resulted in tremendous losses that have accelerated the demise of [the]
Retirement System.”247 Modifying federal tax exemption requirements or limiting the amount of
certain types of bonds might restrain issues of debt that could create serious fiscal risks. Congress
has also limited tax exemptions on some types of municipal bonds on other grounds.248
Federal Policies and Municipal Debt Structures
Federal tax and bankruptcy law help shape financial decisions of state, local, and territorial
governments on how they structure their debts. For instance, constraints on issuance of private
activity bonds (PABs) and on advance refundings of municipal bonds have changed the “muni”
markets. Congress may consider how the different treatment of municipal bonds in federal
bankruptcy law might affect how local governments approach municipal finance decisions.
In municipal finance, GO bonds are typical y used to support publicly provided services and
infrastructure, such as streets, schools, and other public buildings, and are backed by a
jurisdiction’s commitment to collect sufficient tax revenues. GO bonds, backed by the full faith
and credit of a jurisdiction, have the advantage of being supported by a broad set of budgetary
resources, without a specific lien on revenues. The experience of restructuring Puerto Rico’s
public debts could affect how future municipal finance arrangements are made.
Revenue bonds have typical y been used to finance infrastructure to supply services that generate
their own revenue through fees or charges, such as electric power, toll roads, water and sewers,
and airports, often administered through authorities with some measure of independence from
elected governments.249 If a project or authority failed to generate revenues sufficient to cover
debt service, revenue bondholders general y could not obtain support from other revenue sources,
such as general tax revenues. Although revenue bonds are backed by more narrowly defined cash
flows, they carry the advantage that liens could be applied to a stream of fees and charges.
In 1988, Congress enacted bankruptcy legislation that included particular protections for
bondholders’ interests in pledged fees and charges backing certain revenue bonds.250 The 1988 act
added Section 928 to the Bankruptcy Code, which states “special revenues acquired by the debtor
after the commencement of the case shal remain subject to any lien resulting from any security
agreement entered into by the debtor before the commencement of the case.”251 Without that
exception, special revenues collected by a debtor would not be subject to lien.252 Litigation

247 Statement of Motives, Act 116-2011, July 6, 2011, http://osl.pr/download/en/2011/A-0116-2011.pdf.
248 See CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven Maguire and Joseph S. Hughes.
249 Annette T hau, The Bond Book (New York: McGraw-Hill, 2001), pp. 132-133.
250 T he Senate’s explanation of the relevant provision of a bill enacted as P.L. 100-597 stated that “[t]o eliminate the
confusion and t o confirm various state laws and constitutional provisions regarding the rights of bondholders to receive
revenues pledged to them in payment of their debt obligations of a municipality, a new section is provided in the
Amendment to ensure that revenue bondholders receive the benefit of their bargain with the municipal issuer and that
they will have unimpaired rights to the project revenues pledged to them.” U.S. Congress, Senate Committee on the
Judiciary, Report to Accom pany S. 1863, 100th Cong., 2nd sess., S.Rept. 100-506, 1988, p. 12.
251 11 U.S.C. 928(a), applicable to T itle III cases by PROMESA §301.
252 11 U.S.C. 552(a) states that property acquired by a debtor after a bankruptcy filing “is not subject to any lien
resulting from any security agreement ent ered into by the debtor before the commencement of the case.” One summary
of Chapter 9 provisions concluded that “Congress made clear that revenue bondholders are entitled to receive the
revenues pledged to them without any interference and on a timely basis.” James E. Spiotto, Prim er on Municipal Debt
Adjustm ent: Chapter 9, 2012, p. 28, https://web.archive.org/web/20160206065733/http://afgi.org/resources/
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regarding the restructuring of the Puerto Rico Highways and Transportation Authority (PRHTA)
has raised questions about the treatment of revenue bonds and special revenues.253 Congress
could consider modifying Section 928 of the Bankruptcy Code to clarify those issues. Some have
contended a clearer treatment of special revenue bonds would lower financing costs for local
governments.254
Ultra-Long-Term and Exotic Debt
Mutual funds provide smal investors with the advantages of diversification by pooling large
numbers of securities. Expecting those investors, however, to monitor hundreds or thousands of
issuers, some of which may employ complex securities, may be unrealistic. A 1993 SEC staff
report found that larger numbers of unsophisticated individual investors were buying municipal
securities and that governments had come to rely on increasingly complex structured securities
and derivatives.255 The onset of the financial crisis in mid-2007 led to the failure of exotic forms
of municipal debt widely marketed to individual investors.256 The underwriting and marketing of
POBs to retail investors in Puerto Rico has raised concerns.257
Congress passed PROMESA, among other ends, to create a debt restructuring process that would
put Puerto Rico’s public finances on a sustainable basis, which could then anchor a healthier
economic climate.258 Risks due to uncertainties in future economic growth and population trends
could compound potential chal enges embedded in the use of COFINA CABs. Some analysts
have noted that the use of financial instruments or public-private partnership agreements that
provide governments with up-front proceeds may yield few benefits in later years and may shift
fiscal burdens to future generations that may have benefited little from the use of those
proceeds.259

Bankruptcy_Primer.pdf.
253 See 1st Circuit, Opinion, Assured Guaranty Corporation v. Commonwealth of Puerto Rico , cases 18-1165 and 18-
1166, p. 14, March 26, 2019, http://media.ca1.uscourts.gov/pdf.opinions/18-1165P-01A.pdf. T he U.S. Supreme Court
declined to review the case on January 13, 2020; see https://www.supremecourt.gov/docket/docketfiles/html/public/19-
391.html. Also see Karen Pierog, “ Court Ruling in Puerto Rico Bankruptcy Fans Revenue Bond Fears,” Reuters,
March 28, 2019, https://www.reuters.com/article/usa-puertorico-bonds/court -ruling-in-puerto-rico-bankruptcy-fans-
revenue-bond-fears-idUSL1N21E1HY.
254 James E. Spiotto, “T he History and Justification for T imely Payment of Statutory Liens and Pledged Special
Revenues Bond Financing in a Chapter 9 Municipal Debt Adjustment Proceeding: Is a Model State Law Necessary or
Required?” Municipal Finance Journal, vol. 39(4), winter 2019, pp. 47-97.
255 U.S. Securities and Exchange Commission, Staff Report on the Municipal Securities Market, September 1993,
https://www.sec.gov/info/municipal/mr-munimarketreport1993.pdf.
256 See CRS Report RL34672, Auction-Rate Securities, by D. Andrew Austin.
257 Craig McCann, Edward O’Neal, and Susan Song, “UBS and Santander’s Role in Underwriting Employee
Retirement System Bonds,” Securities Litigation & Consulting Group blog, May 16, 2017, http://blog.slcg.com/2017/
05/ubs-and-santanders-role-in-underwriting.html. See also Nick Brown, “ Puerto Rico’s Other Crisis: Impoverished
Pensions,” Reuters, April 7, 2016, https://www.reuters.com/investigates/special-report/usa-puertorico-pensions/. Also
see David Evans, “How UBS Spread the Pain of Puerto Rico’s Debt Crisis to Clients,” Bloomberg, September 22,
2015, https://www.bloomberg.com/news/articles/2015-09-22/how-ubs-spread-the-pain-of-puerto-rico-s-debt-crisis-to-
clients.
258 Rob Bishop and Sean Duffy, “PROMESA Promises Hope for Puerto Rico and Its Investors,” National Review, May
22, 2016, https://www.nationalreview.com/2016/05/puerto-rico-debt-crisis-promesa-bill-positive-solution/.
259 John Gilmour, “T he Indiana T oll Road Lease as an Intergenerational Cash T ransfer,” Public Administration Review,
vol. 72, no. 6 (November/December 2017), pp. 856 -865.
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Congress could consider changes in requirements for federal tax exemptions to encourage issuers
to rely on securities that avoid exotic structures or ultra-long maturities
Bankruptcy Procedures, Disclosure, and Potential Conflicts of Interest
Congress could consider measures to protect the interests of a wider set of investors in complex
bankruptcy cases, such as by strengthening or clarifying disclosure requirements. The COFINA
restructuring raised concerns that hedge funds and institutional investors involved in settlement
negotiations were treated more favorably than individual investors.
Congress could consider bolstering disclosure requirements for officials and professionals
engaged in the debt restructuring processes established by PROMESA. The House unanimously
passed H.R. 1192 (Puerto Rico Recovery Accuracy in Disclosures Act of 2021; PRRADA) on
February 24, 2021, two days after it had been introduced. A companion bil was introduced in the
Senate on February 23, 2021. Both bil s would require professionals engaged in PROMESA Title
III actions to file a disclosure statement under Section 2014(a) of the Federal Rules of Bankruptcy
Procedure before being compensated. In particular, professionals would have to set forth their
connections with creditors, debtors, the Oversight Board and those it has employed, and other
interested parties. The bil would also require retroactive disclosures by professionals who had
already been compensated. In the 116th Congress, the House passed a similar measure (H.R. 683)
on December 8, 2020. A companion bil (S. 1675) had been introduced in the Senate on May 23,
2019.
Hedge funds have played a central role in Puerto Rico’s debt restructuring, as wel as in other
complex bankruptcy cases, in which debt and other claims are increasingly treated as liquid
assets.260 Hedge funds, through the scale of their investments, may enhance market efficiency by
overcoming collective action chal enges facing smal er or more traditional investors, as noted
above. Hedge funds and similar funds, acting either singly or in concert, however, may
disadvantage other claimants.261 Conflicts of interest may be particularly salient in bankruptcy
and debt restructuring processes because major cases have involved a relatively narrow set of
professionals.262 In particular, the extensive and ongoing relationships among McKinsey—the
Oversight Board’s main contractor—and firms working on major bankruptcy cases have raised
concerns.263
Stronger disclosure requirements on holdings of debt instruments and on potential conflicts of
interest may help level the playing field, an issue that Congress has addressed in the past. One
legal scholar argued that Congress crafted provisions of the 1934 Bankruptcy Act to curtail

260 “Claims trading is increasingly important given the emerging role of hedge funds in Chapter 11 proceedings and the
roaring controversy over their disclosure obligations under Federal Rule of Bankruptcy Procedure 2019.” Henry T .C.
Hu and Jay L. Westbrook, “Abolition of the Corporate Duty to Creditors,” Columbia Law Review, vol. 107, no. 193
(October 2007), http://ssrn.com/abstract=977582.
261 Marcel Kahan and Edward B. Rock, “Hedge Funds in Corporate Governance and Corporate Control,” Univ. of
Pennsylvania Law Review, vol. 155 (May 2007), pp. 1077-1079, http://scholarship.law.upenn.edu/faculty_scholarship/
94. T he authors suggest a reconsideration of Securities and Exchange Commission rule 13(d) filing requirements in the
context of corporate control (cf. SEC Rule 13d-5(b)(1), 17 C.F.R. §240.13d-5(b)(1)).
262 Lynn M. LoPucki, “T he Demographics of Bankruptcy Practice,” American Bankruptcy Law Journal, vol. 63, 1989,
pp. 289-320.
263 Michelle Celarier, “T he Story McKinsey Didn’t Want Written,” Institutional Investor, July 8, 2019,
https://www.institutionalinvestor.com/article/b1g5zjdcr97k2y/The-Story-McKinsey-Didn-t-Want-Written. Mary
Williams Walsh, “ One Man vs. McKinsey: A Billionaire Says the Consultancy Has Rigged the Bankruptcy System ,”
New York Tim es, April 11, 2019. Also see the section “ Concerns over COFINA Settlement and Ethical Conflicts.”
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opportunities for collusion among insiders to the disadvantage of other parties.264 Another scholar
argues that requiring investors to disclose “material rights against or affecting distressed firms,
whether direct or derivative, and whether held singly or collectively, in real time, using online
market portals or similar information systems” would curtail potential abuses by unregulated
private investors such as hedge funds.265 Research on other asset-trading disclosure requirements
suggests that they limit insiders’ excess gains.266 According to economic theory, reducing insiders’
excess gains would enhance assets’ attractiveness to rational smal investors.
An Audit of Puerto Rico’s Public Debt
H.R. 6975, introduced on May 22, 2020, would have established a commission to audit al public
debt issued by Puerto Rico since 1972.267 The measure would also have al owed discharge of
some unsecured debts, applied certain ethics requirements to the Oversight Board, provided
federal funding for Board activities, and commissioned a Government Accountability Office
(GAO) report on the Board’s spending and activities, among other provisions.
This proposal to audit the island’s public debt followed other initiatives. In July 2015, the Puerto
Rico legislature enacted Act 97-2015, which, among other provisions, established a Commission
for a Comprehensive Audit of Public Credit.268 The act’s preamble269 stated
As one of the necessary mechanisms to proceed towards a broad fiscal and financial
restructuring, this Legislative Assembly recognizes as prudent and necessary the creation
of an independent commission composed of members from the public sector and private
citizens, drawn from diverse strategic sectors of civil society, entrusted with the
responsibility to audit the totality of Puerto Rico’s public debt. The commission will

264 David A. Skeel, Jr., “Markets, Courts, and the Brave New World of Bankruptcy T heory,” Wisconsin Law Review,
1993, p. 493, https://scholarship.law.upenn.edu/faculty_scholarship/1268. “ Prior to the enactment of section 77B of the
Bankruptcy Act in 1934, the fate of financially distressed firms was played out almost exclusively in state foreclosure
and receivership proceedings and their federal counterparts.… T he widespread perception that this system facilitated
collusion sparked the decision to undertake a vast reformation of the nation ’s insolvency laws. Critics of the equity
receivership process were part icularly concerned that management and senior creditors conspired to squeeze out
bondholders and other widely dispersed investors.”
265 Jonathan C. Lipson, “T he Shadow Bankruptcy System,” Boston Univ. Law Review, vol. 89(5), 2009, p. 1619,
http://www.bu.edu/law/journals-archive/bulr/volume89n5/documents/LIPSON.pdf.
266 André Betzer, Jasmin Gider, Daniel Metzger, and Erik T heissen, “Stealth T rading and T rade Reporting by
Corporate Insiders,” Review of Finance, vol. 19 no. 2 (March 2015), pp. 865-905. Also see Ruidi Huang and Yuhai
Xuan, “‘T rading’ Political Favors: Evidence from the Impact of the ST OCK Act ,” working paper, January 1, 2021,
https://ssrn.com/abstract=2765876.
267 T he House Committee on Natural Resources held a hearing on October 22, 2019, to consider a discussion draft that
included many of the provisions included in H.R. 6975. U.S. Congress, House Committee on Natural Resources,
PROMESA: Discussion Draft (Day One), 116th Cong., 1st sess., October 22, 2019. Discussion draft is available at
http://docs.house.gov/meetings/II/II00/20191022/110103/BILLS-116pih-
T oamendthePuertoRicoOversightManagemen tandEconomicStabilityActorPROMESAandforotherpurposes.pdf .
268 Act 97-2015, July 1, 2015, http://www.lexjuris.com/LexLex/Leyes2015/lexl2015097.htm.
269 Original text: Como uno de los mecanismos necesarios para poner en marcha un proceso amplio de
reestructuración fiscal y financiera, esta Asam blea Legislativa entiende prudente y necesaria la creación de una
com isión independiente integrada por funcionarios del sector publico y de ciuda danos privados, provenientes de
diversos sectores estrategicos en la sociedad civil, encom endada con la responsabilidad de auditar la totalidad de la
deuda publica puertorriqueña. La com isión operara de m anera autónoma y tendrá la autoridad necesaria para
evaluar todas las transacciones gubernam entales que entienda pertinentes para las tareas que le serán encom endadas
por esta Ley.
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operate in an autonomous manner and will have the necessary authority to evaluate al
government transactions pertinent to the tasks assigned by this law.
Governor Rossel ó Nevares disbanded the commission after he took office in 2017.270 Volunteer
citizen efforts have attempted to continue the former commission’s work, although without
formal investigative powers.271 For instance, one citizen group in January 2019 issued a report
chal enging the legal basis of COFINA debt.272
The Oversight Board commissioned an investigation of Puerto Rico’s debt by the law firm Kobre
& Kim, which produced a 608-page final investigative report in August 2018.273 Although the
Kobre & Kim report was extensive, some contended that key points were less than fully
investigated.274 Some of those concerns overlapped with concerns regarding gaps in the reporting
of possible conflicts of interest among those involved in debt restructuring in various roles. The
UCC has also sought to obtain documents and other evidence in PROMESA Title III litigation.275
The Oversight Board, as noted above, chal enged certain debts. Oversight Board Executive
Director Natalie Jaresko, responding to congressional questions in an October 2019 hearing,
opposed a new effort to audit Puerto Rico’s public debts, which, in her view, would delay
restructuring processes now underway and the resolution of PROMESA Title III litigation.276
A bil was introduced in the Puerto Rican Senate on February 25, 2021, that would again establish
a commission to audit the island’s public debts.277 The Oversight Board contended that such a
commission would duplicate work done by Kobre & Kim and suggested the Puerto Rican Senate
modify the bil .278

270 Luis J. Valentín Ortiz, “Puerto Rico Debt Audit Drags on as Creditor Negotiations Heat Up: Almost T wo Years
After the Enactment of the Federal PROMESA Law and the Imposition of a Fiscal Control Board, Puerto Rico Still
Lacks a Public Debt Audit that Shows, Without Doubt, How Much Debt was Legally Contracted,” Center for
Investigative Journalism, June 11, 2018, http://periodismoinvestigativo.com/2018/06/puerto-rico-debt-audit-drags-on-
as-creditor-negotiations-heat-up/.
271 Noticel, “Desmantelar Comisión de Auditoría de Deuda Sirve para Encubrir Ilegalidades [Dismantling the
Committee to Audit the Debt Serves to Cover Up Illegal Actions] ,” January 27, 2017, https://www.noticel.com/junta-
fiscal/ahora/credito-de-pr/economia/20170127/desmantelar-comision-de-auditoria-de-deuda-sirve-para-encubrir-
ilegalidades/.
272 Comisión Ciudadana para la Auditoría Integral del Crédito Público, COFINA: Deuda Ilegal e Ilegitima [COFINA:
Illegal and Illegitimate Debt], January 15, 2019, https://media.noticel.com/o2com-noti-media-us-east-1/document_dev/
2019/01/17/Informe%20sobre%20COFINA%20enero%202019_1547740010072_30040005_ver1.0.pdf .
273 Kobre & Kim LLP, Final Investigative Report, August 20, 2018, pp. 167-168, https://drive.google.com/file/d/19-
lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view. Also see Arthur J. González, “ Oversight Board Member: Read the PR
Debt Report,” Bond Buyer, March 4, 2021.
274 Luis J. Valentín Ortiz, “Puerto Rico Debt Audit Drags on as Creditor Negotiations Heat Up: Almost T wo Years
After the Enactment of the Federal PROMESA Law and the Imposition of a Fiscal Control Board, Puerto Rico Still
Lacks a Public Debt Audit that Shows, Without Doubt, How Much Debt was Legally Contracted,” Center for
Investigative Journalism, June 11, 2018, http://periodismoinvest igativo.com/2018/06/puerto-rico-debt-audit-drags-on-
as-creditor-negotiations-heat-up/.
275 Ibid.
276 T estimony of Natalie Jaresko, Executive Director of the Oversight Board, in U.S. Congress, House Committee on
Natural Resources, Proposed Am endm ents to the Puerto Rico Oversight, Managem ent, and Econom ic Stability Act
(PROMESA), hearings, 116th Cong., 1st sess., October 22, 2019, http://naturalresources.house.gov/download/ms-
natalie-jaresko-testimony-fc-leg-hrg-102219-promesa-ii-day-1.
277 PR Senate Bill 205, https://sutra.oslpr.org/osl/esutra/MedidaReg.aspx?rid=138023.
278 Oversight Board, letter to Puerto Rican Senator Nick Pastrana, April 9, 2021, https://drive.google.com/file/d/
1HfBUZEHAzrXB5Po_pySrLSQ7wZp_mKvQ/view.
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Constitutional Restraints May Be an Ineffective Substitute for
Prudent Budgeting
Some economists have cal ed for imposing constitutional restrictions on government finances,
such as on outlays, revenues, or debt. The Puerto Rican Constitution, as discussed above, includes
a balanced budget requirement and various constraints on public debt. Those provisions, however,
did not appear to set an effective constraint on levels of indebtedness. In the 1840s, when several
states had defaulted on or repudiated public debts, other states in similar fiscal straits managed to
avoid default, apparently motivated by a desire to maintain good credit. Those examples might
motivate federal policymakers to reassess the utility of constitutional or legal mechanisms to
ensure sustainable fiscal policies relative to other ways of establishing fiscal balance. Sound fiscal
policies may provide a better bulwark against default.

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Appendix A. Details of Puerto Rico’s Public Debt
Table A-1 presents data underlying Figure 2, which provides a breakdown of Puerto Rico’s
public debts at the end of July 2016, shortly before the PROMESA debt restructuring process
commenced. One column shows indebtedness to the GDB (GDB Loan), which had been the
Puerto Rican government’s fiscal agent and advisor. Public agencies and corporations deposited
funds in GDB accounts, and the GDB extended loans to some public corporations as an
alternative to issuing bonds to the municipal finance market. GDB bonds are excluded from
Figure 2 to minimize double counting.
Table A-1. Puerto Rico’s Public Debt As of July 31, 2016, in $Millions
Bonds &
GDB
Other
Total

Private Loans
Loans
Loans
Debt
Direct Good Faith & Credit: General Obligations
12,543
169
-
12,713

Indebtedness Payable Primarily from Commonwealth Taxes

COFINA
17,322
-
-
17,322

Highways & Transportation Authority
4,176
1,734
-
5,910

PRIFA (Guaranteed Portion)
1,861
-
-
1,861

Puerto Rico Convention Center District Authority
386
4
-
391

Metropolitan Bus Authority
28
-
-
28

Subtotal
23,774
1,738
-
25,512

Indebtedness Payable Primarily from Commonwealth

Appropriations

Public Building Authority (Guaranteed Portion)
4,005
182
-
4,187

Retirement System for Employees (ERS)
3,144
-
-
3,144

Public Finance Corporation (PFC)
1,091
-
-
1,091

Other Agencies & Public Corporations
-
2,999
102
3,101

Subtotal
8,239
3,181
102
11,523

Indebtedness Payable by Tax-Supported Public Corporations

Government Development Bank (Guaranteed
4,014
-
-
4,014
Portion)
University of Puerto Rico
496
76
-
573
Puerto Rico Industrial Development Company
159
78
-
237
(PRIDCO)
Port of the Americas Authority (APLA; Guaranteed)
226
2
-
227

Highways & Transportation Authority T. Moscoso
140
-
-
140
Bonds
Puerto Rico Infrastructure Finance Authority
226
-
-
226

(
OPto
h r
e trs &
Ag A
enM
ci S
e C
s A
a )
n d Public Corporation
0
609
-
609

Subtotal
5,262
765
-
6,027

Indebtedness Payable by Non-Tax-Supported Public Corporations

Puerto Rico Energy Power Authority (PREPA)
8,955
35
1
8,991
Puerto Rico Aqueduct & Sewer Authority (PRASA)
3,980
66
581
4,627
Guaranteed)
Subtotal
12,935
101
582
13,618
Municipios’ Indebtedness

General Obligations (Property Tax)
881
1,316
-
2,197

Municipal Finance Authority (Property Tax)
620
-
-
620

Sales & Use Tax
5
533
-
538

Special Obligations and Other
221
236
-
457

Subtotal
1,726
2,085
-
3,811
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Bonds &
GDB
Other
Total

Private Loans
Loans
Loans
Debt

Nonrecourse Indebtedness

Children’s Trust
1,442
-
-
1,442

Housing Finance Authority (HFA)
487
85
-
572

Puerto Rico Industrial Investment Corporation
103
-
-
103
(PRIICO)
Other Agencies and Public Corporations
14
0
-
14

Subtotal
2,046
85
-
2,132
Total
66,526
8,124
684
75,334

Exclusions to Eliminate Double Counting

Total Indebtedness

75,334

Less: Government Development Bank Bonds

-3,766

Total “Public Sector Debt” Including COFINA Capital Appreciation Bond Accretion
71,568

Less: Capital Appreciation Bond (CAB) Accretion
-2,914

TOTAL PUBLIC SECTOR DEBT
68,654
Source: CRS calculations based on Commonwealth of Puerto Rico Financial Information and Operating Data Report,
December 18, 2016, https://web.archive.org/web/20170101045953/http://bgfpr.com/documents/
CommonwealthofPuertoRicoFinancialInfoFY201612-18-16.pdf.
Notes: Items might not sum to totals due to rounding. Debt of COFINA (Corporación del Fondo de Interés
Apremiante; Puerto Rico Sales Tax Financing Corporation) was restructured in January 2019. Debt of the
Government Development Bank was restructured in November 2018. AMSCA is the Spanish acronym of the
Mental Health and Anti-Addiction Services Administration. See source document for other notes and caveats.

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Appendix B. Price Trends and Trading Volumes for
Selected Bonds
Prices of Puerto Rico’s bonds have experienced wide swings since the island’s fiscal precarity
became more widely known in 2013. Prices reveal market views of the value of future cash flows,
which in the case of Puerto Rico’s public bonds wil be determined in large part by the debt
restructuring processes created by PROMESA.
Some in Congress have expressed concerns that some investors may have traded on nonpublic
information obtained in the course of PROMESA Title III negotiations among creditors, the
Oversight Board, and representatives of Puerto Rico’s government. Charts shown below depict
price trajectories and trading volumes for selected bonds. CRS chose specific bonds either
because the U.S. Treasury had identified them as representative in materials distributed in the
legislative deliberations that led to PROMESA or because they were larger issues that would
likely be more liquid than smal er issues. CRS also chose bonds that would have been affected by
initiatives by the Oversight Board and the UCC to invalidate certain GO and PBA bonds.
Some 18 entities issued public debt on behalf of Puerto Rico, which added to the complexity of
the island’s debt structure. In addition, most bond issuances were divided into multiple subissues.
Therefore, the figures below give a partial view of trading activity.279
The charts also show, by means of vertical lines, some key events in the restructuring processes.
Those key dates, and other events, are listed in Table C-1, with links to related documents.
Rational investors trade when they have new information, when assets’ risk characteristics are
perceived to have shifted, or due to liquidity needs.
COFINA Prices and Volumes
Figure B-1 shows the evolution of prices and trading volumes for senior and subordinate (junior)
COFINA bonds from 2016 through February 2019, when old COFINA bonds were exchanged for
new ones. Trading amounts are aggregated by week, with bars centered on Mondays.280 Trade
volumes are typical y larger for junior bonds, which was a larger issue, but also may reflect
strategic purchases, as described in a previous section. Other things equal, larger bond issues are
more liquid and trade more frequently.
Trades in junior bonds picked up after PROMESA’s enactment, but those volumes were dwarfed
by some large trades after COFINA defaulted and before the Title III court appointed
representatives for the debt negotiations. Prices for COFINA junior bonds fel to nearly 10% of
par after Hurricane María, but both senior and junior bond prices began to recover at the end of
2017, and especial y after the February 2018 passage of the Balanced Budget Act of 2018 (BBA
2018; P.L. 115-123), which provided funds for Puerto Rico. Those prices jumped sharply after an
agreement on a split of COFINA revenues was announced in June 2018 and, to a lesser extent,
once the Oversight Board announced details of the final COFINA deal.

279 T he Municipal Securities Rulemaking Board’s EMMA site, from which data underlying those figures, is designed to
limit comprehensive collection of trading data for a given issuer.
280 T hus, a bar placed slightly ahead of an event might include trades made late in the week, rather than trading
occurring ahead of the event.
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Figure B-1. Trading Volumes for COFINA Bonds, 2016-2019

Source: CRS calculations based on Municipal Securities Rulemaking Board EMMA data: https://emma.msrb.org/. CUSIPs are COFINA Subordinated (74529JHN8), and
COFINA Senior (74529JNX9).
Notes: Trade volume aggregated by week, centered on Mondays. See text and Table C-1 for information on key events. Vertical scales differ. Volumes include inter-
dealer transactions used to execute block trades.
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GO and PBA Bond Prices and Trading Volumes
Figure B-2 shows prices and trading volumes for selected GO bonds from 2018 through 2020.
Figure B-3 shows that information for selected Public Building Authority (PBA) bonds. These
charts, as noted elsewhere, provide a partial view of the price and trading of GO and PBA bonds
due to the degree of fragmentation of Puerto Rico’s debt structure.
From the time of their issuance until around the time that Hurricane María hit Puerto Rico, the
2014 GO bonds, issued with a provision to be governed by New York law, traded at a premium to
other GO bonds. After María, that premium vanished and GO bonds traded at similar prices, just
above 20% of par (as shown in Figure 4). During 2018, those bonds’ prices rose to about 50% of
par, with marked increases after enactment of the Balanced Budget Act of 2018 (P.L. 115-123) in
February, the April release of Oversight Board proposals for pension reductions and other
changes, and the Board’s announcement of a framework for a COFINA settlement in August.281
GO bond prices began to diverge in January 2019, when the Oversight Board and the UCC
chal enged the validity of late vintage GO bonds and PBA bonds. The 2014 GO bonds began to
trade at lower prices than earlier vintage GO bonds. That gap increased after GO/PBA PSA
negotiations began in April 2019. Sculptor Capital, a hedge fund member of the Lawful
Constitutional Debt Coalition, outlined four no-trade periods, beginning with the start of the PSA
negotiations, and claimed that its trades of relevant bonds took place outside of those periods
(Table B-1). Some large trades in 2011 GO bonds, however, took place during the first no-trade
period, although whether those traders possessed nonpublic information is unclear. Many trades
also occurred soon after the end of those periods. As those periods ended when previously private
information became public, one would expect markets to react.
Table B-1. No-Trade Periods According to Sculptor Capital
Dates
Starting and Ending Dates of No-Trade Periods
April 22, 2019
Commencement of PSA negotiations
June 16, 2019
Oversight Board publishes PSA

October 2, 2019
Sculptor receives material nonpublic information
October 17, 2019
Financial data released by FAFAA to EMMA and Reorg Research

October 25, 2019
Sculptor receives Oversight Board proposal
February 9, 2020
Publication of amended PSA

August 15, 2020
Oversight Board circulates PSA proposal
October 1, 2020
Oversight Board announces PSA proposals
Source: In re: CPR, Informative Motion of Sculptor Capital, October 26, 2020, https://cases.primeclerk.com/
puertorico/Home-DownloadPDF?id1=OTg1Njc5&id2=0.
Notes: Initial date indicates when parties to negotiation may have obtained material nonpublic information.
Second date notes a “cleansing event” when that information became publicly available. EMMA is the Municipal
Securities Rulemaking Board’s electronic data website. Reorg Research covers restructurings for investors.
GO bond spreads narrowed after the fourth no-trade period ended with the Oversight Board PSA
announcement. GO and PBA bond prices dipped in spring 2020, but stabilized after May 2020,
when the Title III court required detailed Rule 2019(b) disclosures.

281 See Table C-1 for a listing of events and links to documents.
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Figure B-2. Price Trends and Trading Volumes for Selected GO Bonds, 2018-2021

Source: CRS calculations based on the Municipal Securities Rulemaking Board EMMA site: https://emma.msrb.org/. CUSIPs are 2006A (74514LHN0), 2009B
(74514LVW4), 2011A GO (74514LYW1), 2012A (74514LA98), and 2014A NY Law GO (74514LE86).
Notes: See text and Table C-1 for information on key events. Trade volumes are summed by week, centered on Mondays. Vertical scales differ. Light grey areas
denote no-trade periods as described by Sculptor Capital. Volumes include inter-dealer transactions used to execute block trades.
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Figure B-3. Selected Puerto Rico Building Authority Bond Price Trends and Trading Volumes, 2018-2020

Source: CRS calculations based on the Municipal Securities Rulemaking Board EMMA site: https://emma.msrb.org/.
Notes: See text and Table C-1 for information on key events. Trade volumes are summed by week, centered on Mondays. Vertical scales differ. Light grey areas
denote no-trade periods as described by Sculptor Capital. Volumes include inter-dealer transactions used to execute block trades.
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Appendix C. Chronology of Selected Events
Table C-1 lists many key events in the restructuring of Puerto Rico’s public debts.
Table C-1. Selected Chronology of Puerto Rico’s Debt Restructuring
Items are in reverse chronological order and include links to supporting documents
Date
Action
Oversight Board, and CPR announce plan support agreement with bond insurers to resolve
May 5, 2021
clawback issues related to HTA and certain other public corporations
April 12, 2021
Oversight Board announces agreement in principle with bond insurers
Oversight Board announces progress in ERS negotiations; files disclosure statement for CPR
March 8, 2021
and related debt with Title III court
February 23, 2021
Oversight Board releases amended PSA proposal for CPR and related debt
Title III court deadline for FOMB to present outline for CPR/ERS/PBA/etc. plan;
February 10, 2021
Board asks for delay and announces an “agreement in principle”

January 6, 2021
David Skeel, Jr. and Arthur J. González reappointed to the Oversight Board

January 2, 2021
Pedro Pierluisi Urrutia inaugurated as Governor of Puerto Rico
2021

Decembe
r 14, 2020 President states intention to name Antonio Medina Comas to Oversight Board
December 8, 2020
President appoints John Nixon and Betty Rosa, reappoints Andrew Biggs to Oversight Board
Title III Court sets February 2021 date for Oversight Board to outline term sheet for
October 29, 2020
amended plan
Title III Court Omnibus hearing; Judge Swain denies motion of National Public Finance
October 28, 2020
Guarantee for an investigation of possible insider trading; asks Oversight Board to submit
term sheet for GO and PBA restructuring by February 10, 2021.
October 21, 2020
Chairman Grijalva et al. ask Oversight Board to investigate insider trading al egations
October 15, 2020
LDCD objection to National Public Finance Guarantee motion
October 13, 2020
Ad Hoc GO Group objection to National Public Finance Guarantee motion
October 13, 2020
QTCB Group objection to National Public Finance Guarantee motion
October 9, 2020
Justin Peterson appointed to Oversight Board
October 6, 2020
David Skeel, Jr. selected as Oversight Board Chair; former Chair José Carrión III steps down
October 5, 2020
National Public Finance asks Title III Court for investigation of insider trading al egations
October 1, 2020
FOMB Announces PSA proposals for CPR and related debt
August 15, 2020
FOMB Circulates PSA proposal
August 5, 2020
Five Members of House NY Delegation send letter to NY State Attorney General
July 2, 2020
Title III Court rules against HTA, other revenue bond holders.
July 1, 2020
Oversight Board Chair José Carrión and Board Member Carlos García to step down.
June 8, 2020
Judge Swain orders compliance with Federal Rule of Bankruptcy Procedure 2019(b)
disclosures
May 21, 2020
Amended PSA for CPR, PBA, ERS, etc.
May 26, 2020
Title III Court Opinion & Order Re: UCC et al. Motion 2019(b) disclosures
Correspondence al eging insider trading among GO creditors filed on CPR docket (C.Long,
March 2, 2020
Feb. 25, 2020 letter)
February 28, 2020
Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico
February 28, 2020
Disclosure Statement for Amended Title III Plan
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Date
Action
Unsecured Creditors Committee asks for more specific Federal Rule of Bankruptcy
February 25, 2020
Procedure 2019(b) disclosures; al eges suspicious trading activity by parties to GO mediation
Amended Plan Support Agreement for CPR, PBA, ERS, etc. “The PSA was signed by the
holders of approximately $8 bil ion in claims of GO Bonds and PBA bonds. The PSA also
February 9, 2020
al ows each holder of GO Bonds or PBA Bonds with a face amount of such bonds in excess
of one mil ion dol ars to join the PSA. Since its execution, holders of an additional $2 bil ion
in GO Bonds or PBA Bonds have joined the PSA.” Amd. Discl. Stmt. p. 8
“Apparently a deal was reached . .in mediation which was widely known among municipal
January 16, 2020
bond dealers and their institutional clients” C.Long letter, Feb. 25, 2020
2020

October 17, 2019
EMMA and Reorg Research publish financial data from AAFAF
September 27, 2019 Oversight Board commences PBA Title III case
September 27, 2019 Oversight Board proposes initial plan of adjustment for CPR, ERS, etc.
September 11, 2019 Title III Court order re: Mediation confidentiality restrictions
August 7, 2019
Wanda Vázquez Garced, the Puerto Rican Justice Minister, sworn in as Governor
August 7, 2019
Puerto Rico’s Supreme Court rules succession violates PR Constitution
August 2, 2019
Gov. Ricardo Rossel ó’s resignation effective, replaced by Pierluisi
July 31, 2019
H Nat Resources Chairman Raúl Grijalva circulates PROMESA discussion draft
July 24, 2019
Title III Court orders stay on specified litigation
July 18, 2019
UCC files chal enges to PBA bonds
June 16, 2019
Executed Plan Support Agreement
June 16, 2019
FOMB Publishes Plan Support Agreement
June 7, 2019
Plan Support Agreement (“Retiree Committee PSA”)
June 7, 2019
Plan Support Agreement (“AFSCME PSA”)
Oversight Board reaches agreements (Plan Support Agreement) with certain creditor
May 31, 2019
groups: Retiree Committee, AFSCME, PBA & CPR GO bondholders
April 22, 2019
Commencement of GO PSA Negotiations
February 5, 2019
Plan of adjustment for COFINA confirmed by Title III Court
January 14, 2019
Oversight Board and UCC chal enge validity of GO bonds issued after 2011
2019

August 30, 2018
Board approves Plan Support Agreement for COFINA
August 20, 2018
Kobre & Kim issues commissioned review of the Government’s debt
August 8, 2018
Board announces deal with senior & junior COFINA creditors, bond insurers
July 5, 2018
Gov. Ricardo Rossel ó Nevares sues Oversight Board
Oversight Board releases proposed Fiscal Plans with pension reductions, labor law changes,
April 18, 2018
regulatory changes
February 9, 2018
Balanced Budget Act of 2018 (BBA 2018; P.L. 115-123) enacted: provides emergency
response funds

2018
September 2017
Hurricanes Irma and María hit Puerto Rico
July 2, 2017
Oversight Board commences PREPA Title III case
May 21, 2017
Oversight Board commences HTA Title III case
May 5, 2017
Oversight Board commences COFINA Title III case
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Date
Action
May 5, 2017
Oversight Board commences ERS Title III case
May 3, 2017
Oversight Board commences CPR Title III case
February 15, 2017
Original expiration date for PROMESA stay: extended 75 days
2017

Source: Compiled by CRS.

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Appendix D. Table of Common Acronyms
Table D-1. Puerto Rico Table of Common Acronyms
Spanish
Acronym
Full Name
Acronym Full Spanish Name
COFINA
Puerto Rico Sales Tax Financing
COFINA
Corporación del Fondo de Interés
Corporation
Apremiante de Puerto Rico
CPR
Commonwealth of Puerto Rico
ELA
Estado Libre Asociado de Puerto Rico
ERS
Puerto Rico Employees Retirement
ASR
Administración de los Sistemas de
System
Retiro de los Empleados del Gobierno
y la Judicatura
FAFAA
Puerto Rico Fiscal Agency and
AAFAF
Autoridad de Asesoría Financiera y
Financial Advisory Authority
Agencia Fiscal
GDB
Government Development Bank
BGF
Banco Gubernamental de Fomento
GO
General obligation bond
—
—
LCDC
Lawful Constitutional Debt Coalition
—
—
Oversight
Financial Oversight and Management
JSF
La Junta de Supervisión Fiscal
Board, FOMB
Board
PBA
Puerto Rico Public Buildings
AEP
Autoridad de Edificios Públicos
Authority
P3
Public-Private Partnerships Authority
Autoridad para las Alianzas Público-
AAPP
Privadas
PRASA
Puerto Rico Aqueduct & Sewer
AAA
Autoridad de Acueductos y
Authority
Alcantaril ados
PREPA
Puerto Rico Electric Power Authority
AEE
Autoridad de Energía Eléctrica
PRHTA
Puerto Rico Highways &
ACT
Autoridad de Carreteras y
Transportation Authority
Transportación
PROMESA
Puerto Rico Oversight, Management,
and Economic Stability Act (P.L. 114-
—
—
187)
PSA
Plan Support Agreement
—
—
SUT
Sales and Use Tax
IVU
Impuesto sobre Ventas y Uso
UCC
Unsecured Creditors Committee
—
—
Source: Compiled by CRS.
Notes: In some cases, such as COFINA, the Spanish acronym is typical y used.

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Author Information

D. Andrew Austin

Analyst in Economic Policy

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should n ot be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

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