Exhibit E

Audited Financial Statements for COFINA for the Year Ended June 30, 2015

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Exhibit E Page 1 of 42
PO Box 42001 • San Juan, PR 00940-2001 • Telephone (787) 722-2525

Municipal Secondary Market Disclosure Information Cover Sheet 

Municipal Securities Rulemaking Board (MSRB)

Electronic Municipal Market Access System (EMMA) 

THIS FILING RELATES TO A SINGLE BOND ISSUE:

Name of bond issue exactly as it appears on the cover of the Official Statement:

Nine-digit CUSIP* numbers if available, to which the information relates:

THIS FILING RELATES TO ALL OR SEVERAL SECURITIES ISSUED BY THE ISSUER, OR ALL OR SEVERAL 

SECURITIES OF A SPECIFIC CREDITOR:

Issuer’s Name: Puerto Rico Sales Tax Financing Corporation (COFINA)

Other Obligated Person’s Name (if any): 

Six-digit CUSIP* number(s): 74529J

TYPE OF INFORMATION PROVIDED: 

A. Annual Financial Information and Operating Data pursuant to Rule 15c2-12

Fiscal Period Covered: 

B. Audited Financial Statements or CAFR pursuant to Rule 15c2-12

Fiscal Period Covered: 2014-15

C. Notice of Failure to Provide Annual Financial Information as Required: 

I represent that I am authorized by the issuer, obligor or its agent to distribute this information publicly.

/s/ Sebastián M. Torres Rodríguez

Sebastián M. Torres Rodríguez

Puerto Rico Fiscal Agency and Financial Advisory Authority, 

 as Fiscal Agent for the Commonwealth

Dated: September 19, 2018

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Exhibit E Page 2 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Basic Financial Statements and 

Required Supplementary Information 

June 30, 2015 

(With Independent Auditors' Report Thereon) 

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Exhibit E Page 3 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Table of Contents 

Independent Auditors' Report 

Management's Discussion and Analysis (Unaudited) 

Basic Financial Statements: 

Governmental Funds Balance Sheet and Statement of Net Position (Deficit) 

Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position 

(Deficit) 

Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances 

and Statement of Activities 

Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and 

Changes in Fund Balances to the Statement of Activities 

Notes to Basic Financial Statements 

Page 

1-2 

3-7 

8 

9 

IO 

11 

12-38 

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Exhibit E Page 4 of 42
The Board of Directors 

KPMG LLP 

American International Plaza 

Suite 1100 

250 Munoz Rivera Avenue 

San Juan, PR 00918-1819 

Independent Auditors' Report 

Puerto Rico Sales Tax Financing Corporation: 

We have audited the accompanying financial statements of the governmental activities and each major fund of 

the Puerto Rico Sales Tax Financing Corporation (the Corporation), a component unit of the Commonwealth of 

Puerto Rico, as of and for the year ended June 30, 2015, and the related notes to the financial statements, 

which collectively comprise the Corporation's basic financial statements as listed in the table of contents. 

Management's Responsibility for the Financial Statements 

Management is responsible for the preparation and fair presentation of these financial statements in 

accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and 

maintenance of internal control relevant to the preparation and fair presentation of financial statements that are 

free from material misstatement, whether due to fraud or error. 

Auditors' Responsibility 

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our 

audit in accordance with auditing standards generally accepted in the United States of America. Those 

standards require that we plan and perform the audit to obtain reasonable assurance about whether the 

financial statements are free from material misstatement. 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements. The procedures selected depend on the auditors' judgment, including the assessment of 

the risks of material misstatement of the financial statements, whether due to fraud or error. In making those 

risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation 

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but 

not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we 

express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and 

the reasonableness of significant accounting estimates made by management, as well as evaluating the overall 

presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 

audit opinions. 

Opinions 

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective 

financial position of the governmental activities and each major fund of the Puerto Rico Sales Tax Financing 

Corporation as of June 30, 2015, and the respective changes in financial position for the year then ended in 

accordance with U.S. generally accepted accounting principles. 

Emphasis of Matters 

Uncertainty about Ability to Continue as a Going Concern 

The accompanying financial statements have been prepared assuming that the Corporation will continue as a 

going concern. As discussed in note 3 to the basic financial statements, on May 5, 2017, the Oversight Board, 

KPMG LLP is a Delaware limited liability partnership and the U.S. member 

firm of the KPMG network of independent member firms affiliated with 

KPMG International Cooperative(" KPMG International"), a Swiss entity. 

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Exhibit E Page 5 of 42
created by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), filed a petition for 

relief under Title Ill of PROMESA similar to bankruptcy. Also as discussed in note 3, the Corporation has stated 

that substantial doubt exists about its ability to continue as a going concern. Management's evaluation of the 

events and conditions and management's plans regarding these matters are described in note 3. The basic 

financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our 

opinions are not modified with respect to this matter. 

Other Matters 

Required Supplementary Information 

U.S. generally accepted accounting principles require that the management's discussion and analysis on 

pages 3 through 7 be presented to supplement the basic financial statements. Such information, although not a 

part of the basic financial statements, is required by the Governmental Accounting Standards Board who 

considers it to be an essential part of financial reporting for placing the basic financial statements in an 

appropriate operational, economic or historical context. We have applied certain limited procedures to the 

management's discussion and analysis in accordance with auditing standards generally accepted in the United 

States of America, which consisted of inquiries of management about the methods of preparing the information 

and comparing the information for consistency with management's responses to our inquiries, the basic 

financial statements, and other knowledge we obtained during our audit of the basic financial statements. We 

do not express an opinion or provide any assurance on the information because the limited procedures do not 

provide us with sufficient evidence to express an opinion or provide any assurance. 

San Juan, Puerto Rico 

September 17, 2018 

Stamp No. E348568 of the Puerto Rico 

Society of Certified Public Accountants 

was affixed to the record copy of this report. 

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Exhibit E Page 6 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Management's Discussion and Analysis (Unaudited) 

June 30, 2015 

As management of the Pue1to Rico Sales Tax Financing Corporation ("the Corporation" or "CO FINA"), we offer 

readers of the Corporation's financial statements this narrative overview and analysis of the financial performance 

during the fiscal year ended June 30, 2015. Please read it in conjunction with the Corporation's basic financial 

statements including the notes thereto, which follow this section. 

Financial Highlights 

• Net deficit in the statement of net position (deficit) increased to $6,459.8 million at June 30, 2015 from 

$5,474.5 million at June 30, 2014. The increase in net deficit is mainly due to interest expense on Sales Tax 

Revenue Bonds and other expenses, of approximately $959.4 million, and the recognition of a custodial 

credit loss on deposits placed in the Government Development Bank for Puerto Rico ("the Bank") amounting 

to $26.2 million. 

• Receipt of sales and use tax increased to $669. 5 million in fiscal year 2015 from $64 3. 7 million in fiscal year 

2014, an increase of $25 .8 million. This increase was due to a statutory rate increase of 4% provided by Act 

No. 91, as amended. See note 1 to the basic financial statements. 

• In September 2014, the Board of Directors of CO FINA, due to Moody's Investment Services (Moody's) and 

Fitch Ratings (Fitch) downgrades of COFINA's credit rating triggering the Additional Termination Event 

(ATE) on the swap agreement, entered into an agreement with Goldman Sachs (GS) that required CO FINA 

to post collateral over a period of time, and allow the swap to remain in place and remove all A TE' s. As of 

June 30, 2015, said collateral amounted to $27 million. See note 9 to the basic financial statements. 

Overview of the Financial Statements 

These basic financial statements include the management's discussion and analysis section, the independent 

auditors' report, and the basic financial statements of the Corporation. The basic financial statements also include 

notes that explain in more detail some of the information in the basic financial statements. 

Required Financial Statements 

• The statement of net position (deficit) provides information about the nature and amounts of resources 

(assets) and the Corporation's obligations (liabilities). 

• Current year revenues and expenses are accounted for in the statement of activities. This statement measures 

the results of the Corporation's operations over the past year. 

• Governmental funds' financial statements present the financial position and results of operations of the 

Corporation's two governmental fund types using a current financial resources measurement focus. The 

statement of revenues, expenditures, and changes in fund balances can be used to determine, for example, 

whether and how the Corporation met its debt service requirements for the year. 

Financial Analysis 

In evaluating the Corporation's finances, in addition to the Corporation's assets and liabilities, one needs to 

consider various non-financial factors, such as changes in economic conditions, and new or changed government 

legislation. Due to the nature of the Corporation's activities, the Corporation's financial strength and ability to 

repay its obligations is solely dependent on the sales and use tax transferred to the Corporation by law and used to 

fund the debt service fund. 

For additional information about the sales tax transferred to the Corporation, refer to note 1 to the basic financial 

statements. 

3 

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Exhibit E Page 7 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puetto Rico) 

Management's Discussion and Analysis (Unaudited) 

June 30, 2015 

Government-Wide Financial Analysis 

The government-wide financial statements were designed so that the user could evaluate the Corporation's 

financial condition at the end of the year. The following is a condensed summary of net position ( deficit) for the 

Corporation at June 30, 2015 and 2014 (in thousands): 

June 30 Change 

2015 2014 Amount Percent 

Assets: 

Receivable from Commonwealth 

of Puerto Rico $ 10,330,795 10,997,814 (667,019) (6.1)% 

Other assets 430,453 436,590 (6,137) (1.4) 

Total assets 10,761,248 11,434,404 (673,156) (5.9) 

Total deferred outflow of sources 96 481 103,172 (6,691) (6.5) 

Liabilities: 

Accounts payable and other 261,606 268,553 (6,947) (2.6) 

Liabilities payable from 

restricted assets 16,955,656 16,640,869 314 787 1.9 

Total liabilities 17,217,262 16,909,422 307,840 1.8 

Total deferred inflow of sources 100,237 102,617 (2,380) (2.3) 

Net position 

(deficit)-

unrestricted $ (6,459,770) (5,474,463) (985,307) 18.0% 

As noted above, the Corporation's net position (deficit) at June 30, 2015, amounted to $(6,459.8) million, an 

increase of $985.3 million or 18% from $(5,474.5) million at June 30, 2014. The increase in net deficit is mainly 

due to interest expense on Sales Tax Revenue Bonds and other expenses, of approximately $959.4 million, and the 

recognition of a custodial credit loss on deposits placed in the Government Development Bank for Puerto Rico 

(the "Bank") amounting to $26.2 million. At June 30, 2015, the Corporation had $16,955.7 million of bonds 

payable outstanding, an increase of$314.8 million or 1.9% from $16,640.9 million at June 30, 2014. As ofJune 30, 

2015 and 2014, the Corporation has recorded $3.4 million to cover for any unfavorable outcome related to a claim 

in connection with the termination of an interest rate exchange agreement in 2008, refer to note 10 to the basic 

financial statements. 

4 

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Exhibit E Page 8 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Management's Discussion and Analysis (Unaudited) 

June 30, 2015 

Condensed revenues, expenses, and change in net position (deficit) for the year ended June 30, 2015 and 2014, are 

presented below (in thousands): 

June 30 Change 

2015 2014 Amount Percent 

Expenses: 

Interest on long-term debt $ (959,437) (945,971) (13,466) 1.4% 

Custodial credit loss on interest bearing 

deposits with Government Development Bank (26,157) (26,157) (100.0)% 

Other (145) (3,254) 3,109 (95.5) 

Total expenditures (985,739) (949,225) (36,514) 3.8 

Program revenues: 

Investment earnings 432 252 180 71.4 

Other 9,666 (9,666) 100.0 

Total revenues 432 9,918 [9,486} (95.6) 

Change in net position (deficit) $ (985,307) (939,307) (46,000) 4.9% 

Total interest on long term debt for the year ended June 30, 2015 amounted to approximately $959.4 million, an 

increase of $13.5 million when compared to 2014. The increase in the interest expense on long-term debt is mainly 

related to a slight increase in the rate on variable-interest rate bonds and the impact of discount on capital 

appreciation bonds. Also, during the fiscal year ended June 30, 2015, the Corporation recorded a custodial credit 

loss on deposits in the Bank amounting to $26.2 million. 

Governmental Fund Financial Analysis 

The Corporation's governmental funds reported a total fund balance as of June 30, 2015 and 2014, of 

$429.6 million and $432.2 million, respectively. The debt service fund is funded with the receipts of sales and use 

tax and interest thereon. For the years ended June 30, 2015 and 2014, the receipts of sales and use tax amounted 

to $669.5 million and $643.7 million, respectively. 

Debt Administration 

As of June 30, 2015, the Corporation's outstanding bonds balance was $16,955.7 million, after taking into account 

an unamortized bond premium of $82.5 million, and an unaccreted discount of $110 million. As of June 30, 2014, 

the Corporation's outstanding bonds and note balance were $16,640.9 million, after taking into account 

unam01tized bond premium of $86.3 million, and an unaccreted discount of $112.6 million. The bonds are payable 

in various dates through fiscal year 2058. 

5 

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Exhibit E Page 9 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

( A Component Unit of the Commonwealth of Puerto Rico) 

Management's Discussion and Analysis (Unaudited) 

June 30, 2015 

During the fiscal year 2015, CO FINA was subject to certain credit downgrades by the major credit rating agencies. 

The following table summarizes the Corporation's credit ratings as of June 30, 2015 and 2014: 

Agency Date Sales Tax Revenue Bonds 

Senior Lien Series First Subordinate Series 

Moody's 06/30/15 Caa2 Caa3 

06/30/14 Baal Baa2 

S&P 06/30/15 CCC- CCC06/30/14 M- A+ 

Fitch 06/30/15 cc cc 

06/30/14 M- A+ 

Going Concern 

Management believes that there is substantial doubt about the Corporation's ability to continue as a going concern 

because of the following: 

On June 30, 2016, the U.S. Congress enacted the Puerto Rico Oversight, Management, and Economic Stability Act 

("PROMESA"), which grants the Commonwealth and its component units' access, including COFINA, to an 

orderly mechanism to restructure their debts in exchange for significant federal oversight over the 

Commonwealth's finances. In broad strokes, PROMESA seeks to provide Puerto Rico with fiscal and economic 

discipline through the creation of the Financial Oversight and Management Board (the Oversight Board), relief 

from creditors and lawsuits through the enactment of a tempora1y stay on litigation, and two alternative methods 

to adjust unsustainable debt. 

On May 5, 2018, the Oversight Board filed a petition for relief under Title III of (PROMESA.) Title III of 

PROMESA incorporates the automatic stay provisions of Bankruptcy Code section 362 and 922, which are made 

applicable to the Title III cases to PROMESA section 301 (a). As fmiher discussed in note 11, certain stakeholders 

(bondholders, creditors, guarantors, investors and others) commenced legal proceedings challenging the 

constitutionality of the law that created COFINA and the ownership of the future SUT revenues. 

As further discussed in note 11, the Oversight Board also approved and certified the fiscal plan of the 

Commonwealth and certain other governmental entities (the Fiscal Plan). The Fiscal Plan contemplates that for 

each of the next 5 fiscal years (FY 2018-2023) some p01iion of the Pledged Sales Tax will be used by the 

Commonwealth for purposes other than payment of CO FINA debt service. 

6 

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Exhibit E Page 10 of 42
Remediation Plan 

PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Management's Discussion and Analysis (Unaudited) 

June 30, 2015 

Management believes that the outcome of the Title III proceeding in the federal court is highly uncertain at this 

time and the resolution of the legal conflicts could result in the redirection of revenues to pay-non COFINA's 

bondholders and other government creditors or significantly modifying or terminating COFINA purpose. The 

Corporation assumes that the Plan of Adjustment that will be filed in the Title III case will address the 

Corporation's liabilities. Management of the Corporation believes that the aforementioned events and the further 

circumstances also described in note 11, raise substantial doubt about the Corporation ability to continue as going 

concern. 

Request for Information 

This financial rep01t is designed to provide those interested with a general overview of the Corporation's finances 

and to enhance the Corporation's accountability for the funds it receives. Questions about this report or requests 

for additional information should be addressed to Puerto Rico Sales Tax Financing Corporation, PO Box 42001, 

San Juan, Puerto Rico, 00940-2001. 

7 

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Exhibit E Page 11 of 42
Assets: 

PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Governmental Funds Balance Sheet and Statement of Net Position (Deficit) 

June 30, 2015 

Governmental Funds Balance Sheet 

General Debt Service 

Fund Fund Total 

Interest-bearing deposits with Government Development Bank 

for Puerto Rico 

Deposit placed with commercial bank 

Cash held by trustee 

Receivable from the Commonwealth of Puerto Rico 

Accrued interest receivable 

Other receivables 

Investments 

Total assets 

Deferred outflows of resources: 

Accumulated decrease in fair value of hedging derivative 

Deferred loss on bonds refunding 

Total deferred outflows of resources 

Liabilities: 

Accounts payable and accrued liabilities 

Accrued interest payable 

Interest rate swap liability 

Unearned revenue - sales and use tax 

Bonds and notes payable in more than one year, net 

Total liabilities 

Deferred inflows of resources: 

Deferred gain on bond refundings 

Fund balance/net position ( deficit): 

Fund balance: 

Restricted 

Unassigned 

Total fund balance 

Total liabilities and fund balance 

Net position ( deficit): 

Unrestricted 

Net position (deficit) 

See accompanying notes to basic fmancial statements. 

$ 5,167,570 

165,63_~ 

5,333,2(& 

178,795 

!78,795 

5,154,410 

5,154,410 

$ 5,333,205_ _ 

8 

360,939 

27,000,000 

4,763 

10,330,795,348 

2,932 

656,223 

397,Q~4~219 

10,755,915,124 

623,945 

10,330,795,348 

!Q,331,419,293 

424,495,831 

424,495,831 

10,755,915,124 

5,528,509 

27,000,000 

4,763 

10,330,795,348 

2,932 

656,223 

___127,26Q,554 

10,761,248,329 

802,740 

10,330,795,348 

1()_,}~1,598,088 

424,495,831 

5,154,410 

429,650,241 

10,761,248,329 

$ 

Adjustments 

53,199,611 

43,281,672 

96,481,283 

3,400,000 

204,203,893 

53,199,611 

(10,330,795,348) 

__l§_,955,656,623 

6,885,664,779 

. 100,237,016 

(424,495,831) 

(5,154,410) 

(429,650,241) 

(6,459,770,271) 

(6,459,770,271) 

Statement of 

Net Position (Deficit) 

5,528,509 

27,000,000 

4,763 

10,330,795,348 

2,932 

656,223 

397,J6_Q,554 

10,761,248,329 

53,199,611 

43,281,672 

96,481,283 

4,202,740 

204,203,893 

53,199,611 

16,955,656,623 

17,217,262,867 

100,237,016 

(6,459,770,271) 

(6,459,770,271) 

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Exhibit E Page 12 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Reconciliation of Governmental Funds Balance Sheet to the 

Statement of Net Position (Deficit) 

June 30, 2015 

Total fund balances - governmental funds: 

Amounts reported for governmental activities in the statement of net position 

(deficit) are different because: 

Deferred outflows of resources do not constitute current financial 

resources and, therefore, are not reported in the funds 

Accrued interest payable is not due and payable in the current period, 

and, therefore, is not reported in the fund financial statements 

Contingent liabilities are not due and payable in the current period, 

and, therefore, are not reported in the fund financial statements 

Bonds and notes payable are not due and payable in the current period, 

and, therefore, are not rep01ted in the funds financial statements 

Deferred loss on bond refundings is not rep01ted as an expenditure in the 

governmental fund financial statements; however, such loss is deferred and 

amortized over the remaining life of the refunded bonds 

Deferred gain on bond refundings is not rep01ted as revenue in the 

governmental fund financial statements; however, such gain is deferred and 

am01tized over the remaining life of the refunded bonds 

Interest rate swap liability is not due and payable in the current period, 

and therefore, is not reported in the funds financial statements 

Receivable from the Commonwealth does not constitute current 

financial resources, and, therefore, is unearned in the fund 

financial statements 

Net position ( deficit) of governmental activities 

See accompanying notes to basic financial statements. 

9 

$ 429,650,241 

53,199,611 

(204,203,893) 

(3,400,000) 

(16,955,656,623) 

43,281,672 

(100,237,016) 

(53,199,611) 

10,330,795,348 

$ (6,459,770,271) 

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Exhibit E Page 13 of 42
Expenditures/expenses: 

General government: 

Payment of obligations of the Commonwealth 

of Puerto Rico 

Custodial credit loss 

Other 

Debt service: 

Interest 

Total expenditures/expenses 

Program revenues: 

Payments from Commonwealth of 

Puerto Rico - sales and use tax 

Investment earnings 

Other income 

Total revenues 

Net program (expenses) revenue 

Other financing sources (uses): 

Transfers in ( out) 

Total other financing sources (uses) 

PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Governmental Funds Statement of Revenues, 

Expenditures, and Changes in Fund Balances and Statement of Activities 

Year ended June 30, 2015 

Statement of Governmental Funds Revenue, 

Expenditures, and Changes in Fund Balances 

General Debt Service 

Fund Fund Total 

$ 2,461,802 2,461,802 

19,732,380 6,424,842 26,157,222 

93,555 51,464 145,019 

643,668,454 643,668,454 

22,287,737 . §5_0,144,760 §.72,43~,127 

669,480,293 669,480,293 

36 401,876 401,912 

30,000 30,000 

30,036 669,882,169 669,912,205 

(22,257,701) 19,737,409 (2,520,292) 

21,970,750 (21,970,750) 

21,970,750 (21,970,750) 

Excess ( deficiency) of revenues and other financing sources 

over expenditures and other financing uses (286,951) (2,233,341) (2,520,292) 

Change in net position ( deficit) 

Fund balance/net position ( deficit): 

At beginning of year 5,441,361 426,729,172 432,170,533 

At end of year $ 5,154,410 424,495,831 429,650,241 

See accompanying notes to basic financial statements. 

10 

Statement 

~ustments of Activities 

(2,461,802) 

26,157,222 

145,019 

315,768,063 959,436,517 

313,306,261 985,738,758 

(669,480,293) 

401,912 

30,000 

(669,480,293) 431,912 

(982,786,554) (985,3_06,8±.62 

2,520,292 

(985,306,846) (985,306,846) 

(5,906,633,958) (5,474,463,425) 

(6,889,420,512) (6,459,770,271) 

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Exhibit E Page 14 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(An Component Unit of the Commonwealth of Puerto Rico) 

Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in 

Fund Balances to the Statement of Activities 

Year ended June 30, 2015 

Net changes in fund balances - total governmental funds: 

Amounts reported for governmental activities in the statement of activities 

are different because: 

Net change in interest payable reported in the statement of activities does 

not require the use of current financial resources and, therefore, is not 

reported as expenditure in the governmental funds 

Accretion on capital appreciation bonds does not require the use of current 

financial resources and, therefore, is not reported as expenditure in the 

governmental funds 

Payments from the Commonwealth of Puerto Rico - Sales and 

Use Tax provide current financial resources to governmental funds; 

however, represent repayments of the receivable from the 

Commonwealth of Puerto Rico in the statement of activities 

Payments of obligations of the Commonwealth of Puetio Rico in exchange 

for future collections of Sales and Use Tax constitute 

secured borrowing transactions recorded as receivable from 

Commonwealth of Puetio Rico in the statement of net position (deficit) 

The ammiization of bond discount/premium, and gain/loss on bond defeasance 

do not require the use of current financial resources and, therefore, 

are not repmied as revenues/expenditures in governmental funds: 

Amortization of bond discount/premium 

Amotiization of gain/loss on bonds defeased 

Change in net position ( deficit) of governmental activities 

See accompanying notes to basic financial statements. 

11 

$ (2,520,292) 

3 

(315,944,254) 

(669,480,293) 

2,461,802 

1,156,874 

(980,686) 

$ (985,306,846) 

============ 

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Exhibit E Page 15 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

(1) Reporting Entity 

Puerto Rico Sales Tax Financing Corporation (the Corporation) is a component unit of the Commonwealth 

of Puerto Rico (the Commonwealth) and a related entity of Government Development Bank for Puerto Rico 

(the Bank or GDB), another component unit of the Commonwealth. The Corporation was created under Act 

No. 91 of the Legislative Assembly of the Commonwealth (the Legislative Assembly), approved on May 13, 

2006; as amended by Act No. 291, approved on December 26, 2006; Act No. 56, approved on July 6, 2007; 

Act No. I, approved on January 14, 2009; Act No. 7, approved on March 9, 2009; and Act No. 18, approved 

on May 22, 2009 (collectively, Act No. 91). The Corporation was originally created for the purpose of 

financing the payment, retirement or defeasance of certain debt obligations of the Commonwealth 

outstanding as of June 30, 2006 (the 2006 Appropriation Debt). 

The Commonwealth imposes a sales and use tax ("SUT") on a broad range of goods and services. The total 

tax imposed is 7% and is allocated as follows: 5 .5% for the benefit of the Commonwealth 

(the Commonwealth Sales Tax), and 1.5% for the municipalities of the Commonwealth. 

Act No. 91 established the Dedicated Sales Tax Fund, a special fund held and owned by the Corporation 

separate and apart from the Commonwealth's General Fund. Act No. 91 requires that the following amounts 

be deposited in the Dedicated Sales Tax Fund in each fiscal year, whichever is greater: (i) a minimum fixed 

amount, referred to in Act No. 91 as the Pledged Sales Tax Base Amount, or (ii) the product of the amount 

of the Commonwealth Sales Tax collected during such fiscal year multiplied by a fraction, the numerator of 

which is two point seventy-five percent (2.75%) and the denominator of which is the rate of the 

Commonwealth Sales Tax (the greater of (i) and (ii) being referred to as the Pledged Sales Tax). In each 

fiscal year, the first collections of the Commonwealth Sales Tax are deposited in the Dedicated Sales Tax 

Fund and applied to fund the Pledged Sales Tax Base Amount. The Pledged Sales Tax Base Amount for the 

fiscal year ended June 30, 2015, was $669,480,293. The Pledged Sales Tax Base Amount increases each 

fiscal yearthereafterat a statutory rate of 4% up to $1,850,000,000. Under Act No. 91, the moneys on deposit 

in the Dedicated Sales Tax Fund may be used for the payment of the Corporation's bonds or satisfaction of 

the Authorized Uses (as defined below). 

During 2009, the Legislative Assembly expanded the purposes of the Corporation. The Corporation is 

authorized to pay or finance, in whole or in paii, or fund, in addition to the 2006 Appropriation Debt: (i) the 

debt of the Secretary of the Treasury of the Commonwealth (the Secretary of the Treasury) with the Bank in 

the amount of $1 billion, a pmiion of the proceeds of which were used to cover the budgetary deficit of the 

Commonwealth for fiscal year 2009, (ii) certain financing granted to the Secretary of the Treasury by the 

Bank payable from future Commonwealth general obligation bonds, and any debt of the Commonwealth 

outstanding as of December 31, 2008, that did not have a source of repayment or was payable from budgetary 

appropriations, (iii) a potiion of the accounts payable to suppliers of the Commonwealth, (iv) operational 

expenses of the Commonwealth for fiscal years 2009, 2010, and 2011, (v) operational expenses of the 

Commonwealth for fiscal year 2012, to the extent included in the annual budget of the Commonwealth, 

(vi) the Puerto Rico Economic Stimulus Fund, (vii) the Commonwealth Emergency Fund in order to cover 

expenses resulting from catastrophic events such as hurricanes or floods, and (viii) the Economic 

Cooperation and Public Employees Alternatives Fund (all such uses, together with the 2006 Appropriation 

Debt, the Authorized Uses). 

12 ( continued) 

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Exhibit E Page 16 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

On October 9, 2013, an amendment to Act No. 9lwas signed into law which increased from 2.75% to 3.50% 

the portion of the Pledge Sales Tax deposited in the Dedicated Sales Tax Fund and expanded the Authorized 

Uses of Corporation's bond proceeds to include, among others, the refinancing of Bond Anticipation Notes 

and the financing of the Commonwealth's deficit for fiscal years 2013, 2014 and 2015. 

Regardless of the level of Commonwealth Sales Tax collections, Act No. 91 requires that in each fiscal year 

all collections of the Commonwealth Sales Tax be deposited in the Dedicated Sales Tax Fund until an amount 

equal to the Pledged Sales Tax Base Amount is deposited before any collections of the Commonwealth Sales 

Tax are deposited in the Commonwealth's General Fund. 

(2) Summary of Significant Accounting Policies 

The preparation of basic financial statements in conformity with U.S. generally accepted accounting 

principles (US GAAP) requires management to make estimates and assumptions that affect the reported 

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial 

statements, and the reported amounts of changes in net position ( deficit) during the reporting period. Actual 

results could differ from those estimates. 

The accounting and reporting policies of the Corporation conform to accounting principles generally 

accepted in the United States of America, as applicable to governmental entities. The Corporation follows 

GASB under the hierarchy established by Statement No. 55, The Hierarchy of Generally Accepted 

Accounting Principles for State and Local Governments, in the preparation of its basic financial statements. 

Following is a description of the Corporation's most significant accounting policies: 

( a) Basis of Presentation 

The financial activities of the Corporation consist only of governmental activities. For its reporting 

purposes, the Corporation has combined the fund and government-wide financial statements using a 

columnar format that reconciles individual line items of fund financial data to government-wide data 

in a separate column. 

Government-Wide Financial Statements-The statement of net position (deficit) and the statement of 

activities report information on all activities of the Corporation. The effect of interfund balances has 

been removed from the statement of net position (deficit). Governmental activities are financed 

through revenue of the SUT deposited in the Dedicated Sales Tax Fund and other financing sources. 

The statement of net position (deficit) presents the Corporation's assets and liabilities, with the 

difference reported as net position (deficit). Net position (deficit) is reported in two categories: 

• Restricted Net Position - Results when constraints placed on net position use are either 

externally imposed by creditors, grantors, contributors, and the like, or imposed by law through 

constitutional provisions or enabling legislation. 

• Unrestricted Net Position - Consist of net position that does not meet the definition in the 

preceding category. Unrestricted net position often is designated in order to indicate that 

management does not consider them to be available for general operations. Unrestricted net 

position often has constraints on use that are imposed by management, but such constraints may 

be removed or modified. 

13 ( continued) 

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Exhibit E Page 17 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

The statement of activities demonstrates the degree to which direct expenses of a given function or 

segment are offset by program revenues. Direct expenses are those that are clearly identifiable within 

a specific function. Program revenues consist of investment earnings (including the change in fair 

value of ineffective investment derivative). Other items not meeting the definition of program revenues 

are reported as general revenues. 

Governmental Funds Financial Statements - The accounts of the Corporation are organized on the 

basis of funds, each of which is considered a separate accounting entity. Separate financial statements 

are provided for governmental funds. Major individual governmental funds are reported as separate 

columns in the fund financial statements. All funds of the Corporation are major funds. 

Fund Accounting - The financial activities of the Corporation are recorded in individual funds, each 

of which is deemed to be a separate accounting entity. Fund accounting is designed to demonstrate 

legal compliance and to aid financial management by segregating transactions related to certain 

government functions or activities. A fund is a separate accounting entity with a self-balancing set of 

accounts. The financial activities of the Corporation that are reported in the accompanying basic 

financial statements have been classified into the following major governmental funds: 

• General Fund - The general fund of the Corporation is used to account for all financial resources, 

except those required to be accounted for in another fund. 

• Debt Service Fund - The debt service fund is used to account for the SUT deposited in the 

Dedicated Sales Tax Fund for the payment of interest and principal on long-term obligations. 

Fund balances for each governmental fund are displayed in the following classifications depicting the 

relative strength of the spending constraints placed on the purposes for which resources can be used: 

• Nonspendable - amounts that cannot be spent because they are either not in a spendable form 

( such as inventories and prepaid amounts) or are legally of contractually required to be maintained 

intact. 

• Restricted - amounts that can be spent only for specific purposes because of constraints imposed 

by external providers (such as grantors, bondholders, and higher levels of government), or imposed 

by constitutional provisions or enabling legislation. Effectively, restrictions may be changed or 

lifted only with the consent of the resource provider or by constitutional provisions or enabling 

legislation. 

• Committed - amounts that can be spent only for specific purposes determined by a formal action 

of the government's highest level of decision-making authority. The Corporation's highest 

decision-making level of authority rests with the Board of Directors. The Corporation did not have 

any committed resources as of June 30, 2015. 

• Assigned - amounts the government intends to use for specific purposes that do not meet the 

criteria to be classified as restricted or committed (generally executive orders approved by the 

Corporation's Executive Director). 

• Unassigned - amounts that are available for any purpose. 

14 ( continued) 

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Exhibit E Page 18 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue11o Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

(b) Measurement Focus, Basis of Accounting and Financial Statement Presentation 

The accounting and financial reporting treatment is determined by the applicable measurement focus 

and basis of accounting. Measurement focus indicates the type of resources being measured such as 

current financial resources or economic resources. The basis of accounting indicates the timing of 

transactions or events for recognition in the financial statements. 

Government-Wide Financial Statements - Government-wide financial statements are reported using 

the economic resources measurement focus and the accrual basis of accounting. Revenue is recorded 

when earned and expenses are recorded when a liability is incurred, regardless of the timing ofrelated 

cash flows. 

Governmental Funds Financial Statements - The governmental fund's financial statements are 

repmted using the current financial resources measurement focus and the modified accrual basis of 

accounting. Revenues are recognized when they become measurable and available. Revenue is 

considered to be available when it is collectible within the current period or soon enough thereafter to 

pay liabilities of the current period. For this purpose, the Corporation considers revenues to be 

available if they are collected within 30 days of the end of the current fiscal year-end. Expenditures 

generally are recorded when a liability is incurred as under accrual accounting, except that interest on 

general long-term obligations is generally recognized when paid, and debt service principal 

expenditures and claims and judgments are recorded only when payment is due. Expenses paid on 

behalf of the Commonwealth are recorded as an increase in the receivable from the Commonwealth of 

Puerto Rico in the government-wide financial statements. 

Payments from the Commonwealth of Puerto Rico for SUT are recognized as revenue in the fund 

financial statements upon collection or when the Commonwealth is obligated to make the payments. 

In the government-wide financial statements, these payments reduce the receivable from the 

Commonwealth of Puerto Rico. Collections of SUT received after the receivable from the 

Commonwealth of Pue11o Rico has been liquidated are reported as revenue in the statement of 

activities. 

(c) Budgetary Accounting 

The Corporation is not required to submit a budget for approval by the Legislative Assembly; 

consequently, no formal budgetary accounting procedures are followed. 

( d) Investments 

Investments are repo1ted at fair value, except for money market instruments with a remaining maturity 

at the time of purchase of one year or less and investment positions in 2a7 (Securities and Exchange 

Commission Rule 2a7 of the Investment Company Act of 1940) like external investment pools, which 

are carried at cost or the pool's share price. Fair value is determined based on quoted market prices 

and quotations received from independent broker/dealers or pricing service organizations. 

(e) Bond Issue Costs and Premium/Discount on Bonds 

Premium (discounts) on bonds are ammtized in a systematic manner over the life of the debt in the 

government-wide financial statements. Premium (discounts) are recognized in the period when the 

related long-term debt is issued in the governmental funds financial statements, and therefore are not 

15 ( continued) 

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Exhibit E Page 19 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue11o Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

accounted for in subsequent periods. Bond issue costs are expensed as incurred in both governmentwide and governmental fund financial statements. 

(I) Interf und Transactions 

Transfers represent flows of assets ( such as cash or goods) without equivalent flows of assets in return 

and without a requirement for repayment. In governmental funds, transfers are rep011ed as other 

financing uses in the fund making transfers and as other financing sources in the funds receiving 

transfers. 

(g) Ref undings 

Refundings involve the issuance of new debt whose proceeds are used to repay immediately ( current 

refunding) or at a future time ( advance refunding) previously issued debt. The difference between the 

reacquisition price and the net canying amount of the old debt is deferred and amortized as a 

component of interest expense over the remaining life of the old debt or the life of the new debt, 

whichever is shorter. The deferred amount is recorded on the statement of net position (deficit) as 

either a deferred inflow or deferred outflow of resources. 

(It) Derivative Instruments 

The Corporation uses derivative financial instruments to manage the economic impact of fluctuations 

in interest rates. Derivative instruments are repo11ed at fair value in the statement of net position 

( deficit). 

(i) Deferred Outflows I Inflows of Resources 

In addition to assets, the statement of net position ( deficit) includes a separate section for deferred 

outflows I inflows of resources. These separate financial statement elements, deferred outflows / 

inflows of resources, represent a depletion (expense/expenditure) or accretion (income) of net position 

(deficit) that applies to future periods and so will not be recognized as an outflow/ inflow ofresources 

until then. The following table shows the deferred outflows / inflows of resources elements at June 

30, 2015: 

Deferred outflows of resources: 

Accumulated decrease in fair value of hedging derivative 

Deferred loss on bond refundings 

Deferred gain on bonds refunding 

16 

$ 53,199,611 

43,281,672 

$ 96,481,283 ======= 

$ 100,237,016 

====:::::::::=== 

( continued) 

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Exhibit E Page 20 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

(j) New Accounting Standard Adopted and Accounting Pronouncements Issued But Not Yet 

Effective 

Accounting Standard Adopted 

The following new accounting pronouncement was early adopted by the Corporation effective July 

1, 2014: 

• GASB Statement No. 72, Fair Value Measurement and Application. This Statement required a 

government to use valuation techniques that are appropriate under the circumstances and for which 

sufficient data are available to measure fair value. The techniques should be consistent with one or 

more of the following approaches; the market approach, the cost approach, or the income approach. 

This Statement also establishes a hierarchy of inputs to valuation techniques used to measure fair value. 

That hierarchy has three levels. Level 1 inputs are quoted prices (unadjusted) in active markets for 

identical assets or liabilities. Level 2 inputs are inputs, other than quoted prices, included within Level 1 

that are observable for the assets or liability, either directly or indirectly. Finally, Level 3 inputs are 

unobservable inputs, such as management's assumptions of the default rate among underlying 

mortgages of a mortgage-backed security. Implementation of this standard had no effect on the 

beginning fund balances of governmental funds. For further details of such impact in the Corporation's 

basic financial statements refer to Notes 6 and 9. 

Accounting Pronouncements Issued but not yet Effective 

• The following new accounting standards has been issued but not yet effective: GASB Statement 

No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting 

and financial reporting for certain external investment pools and pool pmiicipants. Specifically, it 

establishes criteria for an external investment pool to qualify for making the election to measure all of 

its investments at amortized cost for financial reporting purposes. An external investment pool qualifies 

for that reporting if it meets all of the applicable criteria established in this Statement. The specific 

criteria address (I) how the external investment pool transacts with participants; (2) requirements for 

portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a 

shadow price. Significant noncompliance prevents the external investment pool from measuring all of 

its investments at amortized cost for financial reporting purposes. Professional judgment is required to 

determine if instances of noncompliance with the criteria established by this Statement during the 

reporting period, individually or in the aggregate, were significant. If an external investment pool does 

not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 

of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External 

Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and 

measures all of its investments at amortized cost, the pool's pmticipants also should measure their 

investments in that external investment pool at amortized cost for financial reporting purposes. If an 

external investment pool does not meet the criteria in this Statement, the pool's participants should 

measure their investments in that pool at fair value, as provided in paragraph 11 of Statement 31, as 

amended. This Statement establishes additional note disclosure requirements for qualifying external 

investment pools that measure all of their investments at amortized cost for financial reporting purposes 

and for governments that participate in those pools. Those disclosures for both the qualifying external 

investment pools and their participants include information about any limitations or restrictions on 

participant withdrawals. This Statement is not effective until fiscal year 2016, except for certain 

provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions are not 

effective until fiscal year 2017. 

17 ( continued) 

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Exhibit E Page 21 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue1to Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

• GASB Statement No. 80, Blending Requirements for Certain Component Units. This Statement 

improves financial repo1ting by clarifying the financial statement presentation requirements for certain 

component units. This Statement amends the blending requirements established in paragraph 53 of 

Statement No. 14, The Financial Reporting Entity, as amended. This Statement amends the blending 

requirements for the financial statement presentation of component units of all state and local 

governments. The additional criterion requires blending of a component unit incorporated as a 

not-for-profit corporation in which the primary government is the sole corporate member. The 

additional criterion does not apply to component units included in the financial reporting entity 

pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are 

Component Units. This Statement is not effective until fiscal year 2017. 

• GASB Statement No. 81, Irrevocable Split-Interest Agreements. This Statement improves accounting 

and financial reporting for irrevocable split-interest agreements by providing recognition and 

measurement guidance for situations in which a government is a beneficiary of the agreement. Splitinterest agreements are a type of giving agreement used by donors to provide resources to two or more 

beneficiaries, including governments. Split-interest agreements can be created through trusts, or other 

legally enforceable agreements with characteristics that are equivalent to split-interest agreements, in 

which a donor transfers resources to an intermediary to hold and administer for the benefit of a 

government and at least one other beneficiary. Examples of these types of agreements include 

charitable lead trusts, charitable remainder trusts, and life-interests in real estate. This Statement 

requires that a government that receives resources pursuant to an irrevocable split-interest agreement 

recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. 

Fmthermore, this Statement requires that a government recognize assets representing its beneficial 

interests in irrevocable split-interest agreements that are administered by a third party, if the 

government controls the present service capacity of the beneficial interests. This Statement requires 

that a government recognize revenue when the resources become applicable to the reporting period. 

This Statement is not effective until fiscal year 2018. 

Management is evaluating the impact that these Statements will have on the Corporation's basic financial 

statements. 

18 ( continued) 

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Exhibit E Page 22 of 42
(3) Going Concern 

PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Management believes that there is substantial doubt about the Corporation's ability to continue as a going 

concern because of the following: 

On June 30, 2016, the U.S. Congress enacted the Puerto Rico Oversight, Management, and Economic Stability 

Act ("PROMESA"), which grants the Commonwealth and its component units' access, including CO FINA, to 

an orderly mechanism to restructure their debts in exchange for significant federal oversight over the 

Commonwealth's finances. In broad strokes, PROMESA seeks to provide Puerto Rico with fiscal and 

economic discipline through the creation of the Financial Oversight and Management Board (the Oversight 

Board), relief from creditors and lawsuits through the enactment of a temporary stay on litigation, and two 

alternative methods to adjust unsustainable debt. 

On May 5, 2018, the Oversight Board filed a petition for relief under Title III of (PROMESA.) Title III of 

PROMESA incorporates the automatic stay provisions of Bankruptcy Code section 362 and 922, which are 

made applicable to the Title III cases to PROMESA section 301 (a). As further discussed in note 11, ce11ain 

stakeholders (bondholders, creditors, guarantors, investors and others) commenced legal proceedings 

challenging the constitutionality of the law that created COFINA and the ownership of the future SUT 

revenues. 

As further discussed in note 11, the Oversight Board also approved and certified the fiscal plan of the 

Commonwealth and certain other governmental entities (the Fiscal Plan). The Fiscal Plan contemplates that 

for each of the next 5 fiscal years (FY 2018-2023) some p011ion of the Pledged Sales Tax will be used by the 

Commonwealth for purposes other than payment of CO FINA debt service. 

Remediation Plan 

Management believes that the outcome of the Title III proceeding in the federal court is highly uncertain at 

this time and the resolution of the legal conflicts could result in the redirection of revenues to pay-non 

COFINA's bondholders and other government creditors or significantly modifying or terminating COFINA 

purpose. The Corporation assumes that the Plan of Adjustment that will be filed in the Title III case will 

address the Corporation's liabilities. Management of the Corporation believes that the aforementioned events 

and the further circumstances also described in note 11, raise substantial doubt about the Corporation ability 

to continue as going concern. 

( 4) Deposits 

Custodial credit risk is the risk that, in the event of a bank failure of a depository financial institution, the 

Corporation will not be able to recover deposits or will not be able to recover collateral securities that are in 

possession of an outside party. The Corporation does not have a policy for custodial credit risk. 

The table presented below discloses the level of custodial credit risk assumed by the Corporation at June 30, 

2015. As of June 30, 2015, $58,435,731 of the deposit01y bank balance of $58,690,494 was uninsured as 

follows: 

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Exhibit E Page 23 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Depository 

Carrying bank 

amount balance 

Interest-bearing deposits with GDB $ 5,528,509 $ 31,685,731 

Deposits placed with banks 27,000,000 27,000,000 

Cash held by trustee 4,763 4,763 

Total $ 32,533,272 $ 58,690,494 

Amount 

uninsured and 

un co Ila teralized 

$ 31,685,731 

26,750,000 

$ 58,435,731 

GDB faces significant risk and uncertainties and it cmTently does not have sufficient liquid financial 

resources to meet obligations as they become due. Therefore, deposits held at GDB were subject to strict 

restrictions and limitations during fiscal year 2015, and subsequent periods. GDB served as the primary 

depository agent of the Commonwealth, its instrumentalities and municipalities' funds; depositors' cash and 

cash equivalents with GDB are thus subject to custodial credit risk. Management determined that a custodial 

credit loss existed as of June 30, 2015 for the deposits held at GDB. Based on an evaluation of the availability 

and recoverability of such deposits, a custodial credit loss on these deposits has been recorded on the financial 

statements as follows: 

Governmental activities: 

Carrying value before loss 

Custodial credit loss 

Net carrying value 

Amount 

$ 31,685,731 

(26,157,222) 

$ 5,528,509 

The aforementioned custodial credit loss of approximately $26.2 million was recognized as general 

government expenditures of the governmental activities. 

GDB is currently in a process directed to restructure its obligations. Such restructuring may require the 

offset between financial instruments assets and liabilities held by GDB. The proposed restructuring remains 

subject to different milestones. Upon an eventual restructuring of GOB obligations and the execution of the 

milestones noted in the GDB Restructuring Support Agreement, the recorded and unrecorded custodial credit 

loss on the interest-bearing deposits disclosed above may change. 

At February 28, 2018 (last reporting period that GDB has available financial information prior to its business 

discontinuance effective March 23, 2018), the Corporation holds deposits at GDB of approximately $26.1 

million (unaudited). The ultimate custodial credit loss related to the deposits held at GDB subsequent to June 

30, 2015, if any, cannot be determined until GOB concludes its restructuring process. 

(5) Receivable from the Commonwealth of Puerto Rico 

At June 30, 2015, the receivable from the Commonwealth of Puerto Rico consist of SUT amounts for which 

the Commonwealth is obligated to make payments. 

As previously disclosed in note 1, regardless of the level of Commonwealth sales tax collections, Act No. 91 

requires that in each fiscal year all collections of the Commonwealth sales tax be deposited in the Dedicated 

20 ( continued) 

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Exhibit E Page 24 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Sales Tax Fund until an amount equal to the Pledged Sales Tax Base Amount is deposited before any 

collections of the Commonwealth sales tax are deposited in the Commonwealth's General Fund. 

(6) Investments 

In accordance with investment guidelines promulgated by the Bank for agencies and public corporations of 

the Commonwealth under the authority provided by Act No. 113 of August 3, 1995, and Executive Order 

1995-50A (the investment guidelines), the Corporation is authorized to purchase or enter into the following 

investment instruments: 

• U.S. government and agencies obligations 

• Certificates of deposit 

• Bankers acceptances 

• Commercial paper 

• Paiiicipations in the Puerto Rico Government Investment Trust Fund (PRGITF) 

• Obligations of the Commonwealth of Puerto Rico, its agencies, municipalities, public corporations, and 

instrumentalities 

• Obligations of state and local governments of the United States of America 

• Mortgage and asset-backed securities 

• Corporate debt, including investment contracts 

• External investment pools 

The Corporation's investment policies establish limitations and other guidelines on maturities and amounts 

to be invested in the aforementioned investment categories and by issuer/counterparty and on exposure by 

country. In addition, such policies provide guidelines on the institutions with which investment transactions 

can be entered into. In addition, the Asset Liability Management Committee (ALCO) of the Bank, in 

conjunction with the board of directors of the Corporation will determine, from time to time, other 

transactions that the Corporation may enter into. 

Investments held by the debt service fund are purchased following the provisions of the related trust 

indenture. 

Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair 

value of an investment. The Corporation's investment policies also provide that the Bank's ALCO is 

responsible for implementing and monitoring the interest rate risk policies and strategies. The Bank's ALCO 

meets on a monthly basis to coordinate and monitor the interest rate risk management of interest sensitive 

assets and interest sensitive liabilities, including matching of their anticipated level and maturities, consistent 

with the c01Tesponding laws and the Board of Directors objectives. 

The following table summarizes the type and maturities of investments held by the Corporation at June 30, 

2015: 

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Exhibit E Page 25 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue11o Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Due within 

Investment type one year 

U.S. Treasury State and Local Government Series (SLGs) $ 14,595,810 

Corporate debt: 

Credit Agricole Corp. 22,900,000 

Abbey National North America 44,990,261 

Institutional Secured Funding 49,988,300 

Anglesea Funding PLC 49,989,179 

Banque Populaire and Caisse d'Epargne 31,991,264 

Societe Generale Group 31,895,276 

External investment pools: 

Dreyfus Government Cash Management 150,373,556 

Puerto Rico Government Investment 

Trust Fund (PRGITF) 536,908 

Total investments $ 397,260,554 

Investments in external investments pools consist of $536,908 invested in PRGITF, an internal investment 

pool of the Commonwealth, and $150,373,556 invested in Dreyfus Government Cash Management 

(Dreyfus) with the Bank of New York Mellon, which is an investment pool registered with the Securities 

and Exchange Commission. 

Credit Risk - Credit risk is the risk that an issuer or other counterpa11y to an investment will not fulfill its 

obligations. The Corporation's investment policies provide that investment transactions shall be entered into 

only with counterpm1ies that are rated BBB+/A-1 or better by Standard & Poor's or equivalent rating by 

Moody's or Fitch, depending on the type and maturity of the investment and the counterparty to the 

transaction. Any exceptions must be approved by the Corporation's board of directors. The investment 

policies also provide that purchases and sales of investment securities shall be made using the delivery versus 

payment procedures. 

Investments in U.S. Treasury SLGs canythe explicit guarantee of the U.S. government. As ofJune 30, 2015, 

the credit rating of PRGITF, Dreyfus and the Corporate Debt portfolio was "AAAm", "A-1+", and "A-1", 

respectively, by Standard & Poor's. The investment in PRGITF was held by the Corporation, while the 

investments in Corporate Debt and Dreyfus were held by Bank of New York Mellon, as trustee, in the name 

of the Corporation. 

Concentration of Credit Risk - The Corporation places no limits on the amount it may invest in any one 

issuer. As of June 30, 2015, 3.7% of the Corporation's investments are in U.S. Treasmy State and Local 

Government Series, 58.3% are in corporate debt, and 38% are in external investment pools. 

22 ( continued) 

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Exhibit E Page 26 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

The following table shows the investments by fair value level held by the Corporation at June 30, 2015: 

As of Fair Value Measurement Levels 

Investments bJ:: fair value level June 30, 2015 Level 1 Levell Leve13 

Debt securities: 

U.S. Treasury State and Local Government Series (SLGs) $ 14,595,810 $ $ 14,595,810 $ 

Corporate debt: 

Credit Agricole Corp. 22,900,000 22,900,000 

Abbey National North America 44,990,261 44,990,261 

Institutional Secured Funding 49,988,300 49,988,300 

Anglesea Funding PLC 49,989,179 49,989,179 

Banque Populaire and Caisse d'Epargne 31,991,264 31,991,264 

Societe Generale Group 31,895,276 31,895,276 

External investment pools: 

Dreyfus Government Cash Management 150,373,556 150,373,556 

Puerto Rico Government Investment 

Trust Fund (PRGITF) 536 908 536 908 

Total investments by fair value level $ 397,260,554 $ $ 397,260,554 $ 

The debt securities, corporate debt and the external investment pools classified in Level 2 of the fair value 

hierarchy are valued using inputs other than quoted prices under Level 1 that are observable for the assets, 

either directly or indirectly on the measurement date. 

(7) Transactions with the Bank and the Commonwealth 

The Corporation is a related entity of the Bank. During the year ended June 30, 2015, the Bank provided 

certain management and administrative services to the Corporation at no cost. 

In accordance with Act No. 91, the Corporation incurred expenses on behalf of the Commonwealth 

amounting to approximately $2.5 million for Authorized Uses. 

23 ( continued) 

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Exhibit E Page 27 of 42
(8) Bonds Payable 

PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

As of June 30, 2015, bonds payable of the Corporation consist of the following (in thousands): 

Face/Effective 

Descrietion Interest Rate Amount 

Sales Tax Revenue Bonds, Series 2007 A: 

Capital Appreciation Bonds due from August 1, 2040 to 

August 1, 2056 4.96%-5.34% $ 2,485,741 

Fixed Rate Bonds due on August 1, 2057, including 

unamortized premium of $14,787 5.25% 578,672 

LIBOR-Based Adjustable Rate Bonds due on August 1, 

2057 1.11% 136,000 

Sales Tax Revenue Bonds, Series 2007B: 

Capital Appreciation Bonds due from August 1, 2027 to 

August 1, 2032 6.20%-6.25% 239,930 

Fixed Rate Bonds due from August 1, 2036 to August 1, 

2057, net of unaccreted discount of $2,529 6.05%-6.35% 1,183,471 

Sales Tax Revenue Bonds, Series 2007C: 

Capital Appreciation Bonds due from August 1, 2022 to 

August 1, 2038 6.10% 133,567 

Term Bonds due from August 1, 2022 to August 1, 2038 6.00% 415,305 

Sales Tax Revenue Bonds, Series 2008A: 

Capital Appreciation Bonds due from August 1, 2024 to 

August 1, 2036 6.23% 382,804 

Term Bonds due from August 1, 2027 to August 1, 2038 6.13% 488,885 

Subtotal carried forward 6,044,375 

24 ( continued) 

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Exhibit E Page 28 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Description 

Sales Tax Revenue Bonds, First Subordinate Series 2009A: 

Fixed Rate Bonds due from August 1, 2015 to August 1, 

2029, including unamortized premium of$8,979, net of 

unaccreted discount of $11,273 

Term Bonds due from August 1, 2036 to August 1, 2044, 

including unamo1tized premium of $14,901, and net of 

unaccreted discount of $44,429 

Capital Appreciation Bonds due from August 1, 2030 to 

August 1, 2034 

Conve1tible Capital Appreciation Bonds due on August 1, 

2030 to August 1, 2032 (1) 

Sales Tax Revenue Bonds, First Subordinate Series 2009B: 

Fixed Rate Bonds due from August 1, 2025 to August 1, 

2039 

Capital Appreciation Bonds due from August 1, 2033 to 

August 1, 203 5 

Convertible Capital Appreciation Bonds due from 

August 1, 2025 to August 1, 2031 (2) 

Sales Tax Revenue Bonds, Senior Series 2009C - Fixed Rate: 

Bonds due on August 1, 2057 

Sales Tax Revenue Bonds, First Subordinate Series 2010A: 

Fixed Rate Bonds due from August 1, 2016 to August 1, 

2040, including unamortized premium of$1,129 and net 

of unaccreted discount of $2,319 

Term Bonds due from August 1, 2036 to August 1, 2042, 

net ofunaccreted discount of$22,749 

Capital Appreciation Bonds due from August 1, 2031 to 

August 1, 2036 

Convertible Capital Appreciation Bonds due on August 1, 

2029 to August 1, 2033 (3) 

Subtotal carried forward 

(1) Conve1tible to fixed-rate interest bonds on August 1, 2016. 

Face/Effective 

Interest Rate 

3.75%-6.13% $ 

5.75%-6.50% 

6.88%-7.13% 

6.75% 

6.05%-6.35% 

7.38%-7.48% 

6.90%-7.00% 

5.75% 

3.38%-5.63% 

5.38%-5.50% 

6.65%-6.77% 

6.13%-6.25% 

(2) Convertible to fixed-rate interest bonds on August 1, 2016 and August 1, 2020 

for bonds maturing on August 1, 2030 and 2031. 

(3) Conve1tible to fixed-rate interest bonds on August 1, 2019. 

25 

Amount 

1,066,076 

1,785,473 

212,166 

513,556 

918,920 

83,442 

313,291 

237,875 

305,421 

1,214,591 

186,204 

209,347 

13,090,737 

( continued) 

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Exhibit E Page 29 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Face/Effective 

Description Interest Rate Amount 

Sales Tax Revenue Bonds, First Subordinate Series 201 OC: 

Fixed Rate Bonds due from August 1, 2035 to August 1, 

2041, including unamortized premium of $14,071 and net 

of unaccreted discount of $776 5.13%---6.50% $ 464,510 

Term Bonds due from August 1, 2033 to August 1, 2041, 

net of unaccreted discount of $22,608 5.00%-5.50% 1,047,862 

Capital Appreciation Bonds due from August 1, 2037 to 

August 1, 2039 6.63% 135,847 

Sales Tax Revenue Bonds, First Subordinate Series 201 OD -

Fixed Rate Bonds due on August 1, 2042 5.75% 89,435 

Sales Tax Revenue Bonds, First Subordinate Series 201 OE -

Fixed Rate Bonds due on August 1, 2042 5.75% 92,755 

Sales Tax Revenue Bonds, First Subordinate Series 201 lA-l: 

Fixed Rate Bonds due on August 1, 2043, including 

unamortized premium of $2,578 and net ofunaccreted 

discount of $2,608 5.00%-5.25% 354,999 

Capital Appreciation Bonds due from August 1, 2023 to 

August 1, 2041 5.25%---6.50% 52,197 

Sales Tax Revenue Bonds, First Subordinate Series 201 lA-2 

Capital Appreciation Bonds due from August 1, 2043 to 

August 1, 2050 7.00% 433,488 

Sales Tax Revenue Bonds, First Subordinate Series 201 lB: 

Fixed Rate Bonds due from August 1, 2031 and August 1, 

2036 5.00%-5.15% 45,620 

Sales Tax Revenue Bonds, Senior Series 201 lC: 

Fixed Rate Bonds due from August 1, 2020 to August 1, 

2039, including unamortized premium of $12,144 and net 

ofunaccreted discount of $712 4.00%-5.00% 192,362 

Term Bonds due from August 1, 2040 and August 1, 2046, 

including unamortized premium of $13,949 5.00%-5.25% 737,704 

Capital Appreciation Bonds due from August 1, 2034 to 

August 1, 2041 6.15%---6.25% 126,986 

Sales Tax Revenue Bonds, Senior Series 2011 D: 

Fixed Rate Bonds due on August 1, 2023 3.80% 45,000 

Term Bonds due from August 1, 2025 and August 1, 2036 4.10%--4.85% 46,155 

Bonds payable - net $ 16,955,657 

All term bonds have fixed interest rates. 

26 ( continued) 

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Exhibit E Page 30 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Bonds and note payable activity for the year ended June 30, 2015 is as follows (in thousands): 

Balance at 

Descrietion June 30, 2014 Additions Reductions 

Bonds payable $ 11,474,555 

Capital appreciation bonds - principal 23,716,216 

Discount on capital appreciation bonds (18,523,595) 315,944 

Less: 

Unamortized bond premium 

(discount), net (26,306) (1,157) 

Bonds and note payable - net $ 16,640,870 315,944 (1,157) 

As of June 30, 2015, debt service requirements for bonds outstanding were as follows: 

Year ending June 30 Princi~al 

2016 $ 11,300,000 

2017 38,295,000 

2018 18,745,000 

2019 47,950,000 

2020 79,765,000 

2021-2025 826,370,000 

2026-2030 1,996,735,000 

2031-2035 3,649,845,000 

2036-2040 5,673,625,000 

2041-2045 7,677,065,000 

2046-2050 6,492,368,317 

2051-2055 5,285,143,349 

2056-2058 3,393,564,581 

35,190,771,247 

Plus (less): 

Unam01iized premium 82,540,851 

Unaccreted discount (110,003,933) 

Unaccreted interest (18,207,651,542) 

Bonds 

payable - net $ 16,955,656,623 

(1) 

Interest 

647,350,179 

674,289,879 

693,590,212 

692,042,637 

697,230,034 

3,514,559,732 

3,226,854,358 

2,707,847,854 

1,999,524,575 

748,279,580 

316,602,249 

313,364,874 

149,188,804 

$ 16,380,724,967 

Interest 

subsidy (1) 

(3,834,522) 

(3,834,522) 

(3,834,522) 

(3,834,522) 

(3,834,522) 

(19,172,612) 

(19,172,612) 

(19,172,612) 

(19,172,612) 

(8,627,677) 

(104,490,735) 

Balance at 

June 30, 2015 

11,474,555 

23,716,216 

(18,207,651) 

(27,463) 

16,955,657 

Total 

654,815,657 

708,750,357 

708,500,690 

736,158,115 

773,160,512 

4,321,757,120 

5,204,416,746 

6,338,520,242 

7,653,976,963 

8,416,716,903 

6,808,970,566 

5,598,508,223 

3,542,753,385 

51,467,005,479 

Sales Tax Revenue Bonds, First Subordinate Series 2010D and 2010E were issued as Build America Bonds. The 

Corporation will receive a subsidy payment from the federal government equal to 35% and 45%, respectively, of 

the amount of each interest payment. On June 24, 2013, the IRS sent notice that 8.7% of the subsidy payment on 

the Build America Bonds will be sequestered due to adjustments to the Federal Government budget. 

27 ( continued) 

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Exhibit E Page 31 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

At June 30, 2015, the Corporation has $136,000,000 of LIBOR based adjustable-rate bonds maturing on 

August 1, 2057. As discussed in note 9, the Corporation has entered into a $136,000,000 interest rate swap, 

whereby it receives the same rate paid on the adjustable rate bonds and pays a fixed rate of 4.92% through 

August 1, 2057. Accordingly, the Corporation has synthetically fixed the interest rate on the adjustable rate 

bonds. Assuming the rate effective as of June 30, 2015 remains the same, debt service requirements for the 

adjustable rate bonds and net swap payments for their term, are as follows: 

Adjustable-Rate Bonds Interest Rate 

Year ending June 30 Princi(!al Interest Swa(!, Net Total 

2016 $ 1,619,745 5,071,455 6,691,200 

2017 1,844,867 4,846,333 6,691,200 

2018 1,844,867 4,846,333 6,691,200 

2019 1,844,867 4,846,333 6,691,200 

2020 1,844,867 4,846,333 6,691,200 

2021-2025 9,224,336 24,231,664 33,456,000 

2026-2030 9,224,336 24,231,664 33,456,000 

2031-2035 9,224,336 24,231,664 33,456,000 

2036-2040 9,224,336 24,231,664 33,456,000 

2041-2045 9,224,336 24,231,664 33,456,000 

2046-2050 9,224,336 24,231,664 33,456,000 

2051-2055 9,224,336 24,231,664 33,456,000 

2056-2058 136,000,000 6,457,035 10,270,965 152,728,000 

Total $ 136,000,000 80,026,600 204,349,400 420,376,000 

28 ( continued) 

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Exhibit E Page 32 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue1to Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

The amount deposited each year in the Dedicated Sales Tax Fund is pledged for the payment of the 

Corporation's bonds payable. The minimum amount to be deposited is the SUT Base Amount, which for 

the fiscal year ended June 30, 2015, was $669,480,293. The SUT Base Amount increases each fiscal year at 

a statutory rate of 4% up to $1,850,000,000. At June 30, 2015, the estimated SUT Base Amount, by year, is 

as follows: 

Year ending June 30 Amount 

2016 $ 696,259,504 

2017 724,109,884 

2018 753,074,279 

2019 783,197,250 

2020 814,525,140 

2021-2025 4,588,200,125 

2026-2030 5,582,246,999 

2031-2035 6,791,657,012 

2036-2040 8,263,089,218 

2041-2045 9,250,000,000 

2046-2050 9,250,000,000 

2051-2055 9,250,000,000 

2056-2058 5,550,000,000 

$ 62,296,359,411 

On September 2014, the Board of Directors of CO FINA, due to Moody's and Fitch downgrade of CO FINA' s 

credit triggering the Additional Termination Event (ATE) on the agreement, entered into an agreement 

with Goldman Sachs (GS) that required COFINA to post collateral over time, and allow the swap to remain 

in place and remove all ATE's. As of June 30, 2015 said collateral amounted to $27 million. 

On July 29, 2014, Fitch lowered its rating on the Commonwealth's COFINA Sales Tax Revenue Bonds, 

Senior Series, and the COFINA Sales Tax Revenue Bonds, First Subordinate Series, from "AA-" to "BB-", 

and from "A+" to "BB-", respectively. Subsequently, Fitch lowered the Corporation's credit ratings two 

more times. As of June 30, 2015 the Corporation's credit ratings was "CC" for both the Senior Series, and 

the First Subordinate Series. 

On July 11, 2014, Standard & Poor's Ratings Services (S&P) lowered its rating on the Commonwealth's 

COFINA Sales Tax Revenue Bonds, Senior Series, and COFINA Sales Tax Revenue Bonds, First 

Subordinate Series, from "AA-" to "BBB", and from "A+" to "BBB-", respectively. Subsequently, S&P 

lowered the Corporation's credit ratings three more times. As of June 30, 2015 the Corporation's credit 

ratings was "CCC-" for both the Senior Series, and the First Subordinate Series. 

On July 1, 2014, Moody's lowered its rating on the Commonwealth's COFINA Sales Tax Revenue Bonds, 

Senior Series, and CO FINA Sales Tax Revenue Bonds, First Subordinate Series, from "Baal" to "Ba3", and 

from "Baa2" to "Bl", respectively. Subsequently, Moody's lowered the Corporation's credit ratings on 

February 19, 2015 and May 21, 2015. As of June 30, 2015 the Corporation's credit ratings was "Caa2" for 

the COFINA Sales Tax Revenue Bonds, Senior Series, and "Caa3" for the COFINA Sales Tax Revenue 

Bonds, First Subordinate Series. 

29 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 33 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puetto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

On November 23, 2011, the Corporation issued $397.7 million Series 201 lA-1 bonds. Patt of the proceeds 

from the Series 201 lA-1 bonds was used to advance refund part of the outstanding Series 2009A bonds 

aggregating $52,780,000 and bearing interest ranging from 4.00% to 6.125%. The Corporation used 

approximately $65,867,000 from the net proceeds of the issued Series 2011A-1 bonds and other funds to 

purchase U.S. government securities, which were deposited in an irrevocable trust fund with an escrow agent 

to provide for all future debt services payments of the refunded Series 2009A bonds. On November 23, 2011, 

the Corporation also issued its Series 2011 B bonds amounting to approximately $45.6 million to advance 

refund part of the outstanding Series 2009 B bonds aggregating $38,490,000 and bearing interest at 6.05%. 

The Corporation used the net proceeds of the issued Series 201 lB bonds and other funds to purchase 

U.S. government securities, which were deposited in an irrevocable trust fund with an escrow agent to 

provide for all future debt services payments of the refunded Series 2009 B bonds. Accordingly, the 

Series 2009A and the Series 2009B refunded bonds are considered to be defeased and the liabilities have 

therefore been removed from the statement of net position. As a result of these advance refundings, the 

Corporation expects to increase its total debt service requirements by approximately $34.3 million over the 

next 25 years and will incur an economic loss (the difference between the present values of the debt service 

payments of the refunded bonds and the refunding bonds) of approximately $4.7 million. The outstanding 

balance of the advance refunded bonds was $91,270,000 at June 30, 2015. 

(9) Derivative Instruments 

By using derivative financial instruments to hedge the exposure to changes in interest rates, the Corporation 

exposes itself to interest rate risk, credit risk, and termination risk. 

Interest rate risk is the adverse effect on the value of a financial instrument that results from a change in 

interest rates. The Corporation is exposed to interest rate risk on its pay-fixed, receive-variable swap; as 

LIBOR decreases, the Corporation's net payment on the swap increases. At the same time, interest payments 

on the hedged adjustable rate bonds decrease. The interest rate risk associated with interest rate swap 

contracts is managed by establishing and monitoring parameters that limit the types and degree of interest 

rate risk that may be undettaken. 

Credit risk is the failure of the counterparty ( or its guarantor) to perform under the terms of the derivative 

contract. When the fair value of a derivative contract is positive, the counterparty owes the Corporation, 

which creates credit risk for the Corporation. When the fair value of a derivative contract is negative, the 

Corporation owes the counterparty and, therefore, does not possess credit risk. The Corporation minimizes 

the credit risk in derivative instruments by entering into transactions with counterparties whose credit rating 

is acceptable under the investment policies of the Corporation. At June 30, 2015, there is no credit risk since 

the fair value of derivative instrument is negative. 

Termination risk is the possibility that a hedging derivative instrument's unscheduled end will affect the 

Corporation's liability strategy or will present the Corporation with potentially significant unscheduled 

termination payments to the counterparty. The Corporation or its counterpatties may terminate a derivative 

instrument if the other patty fails to perform under the terms of the contract. The Corporation is at risk that 

the counterparty will terminate a swap at a time when the Corporation owes it a termination payment. The 

Corporation has mitigated this risk by specifying that the counterparty has the right to terminate only as a 

result of certain events, including: a payment default by the Corporation; insolvency of the Corporation ( or 

similar events); or a downgrade of the Corporation's credit rating below BBB+ or Baal. If at the time of 

termination, an investment derivative instrument is in a liability position, the Corporation would be liable to 

the counterparty for a payment equal to the liability, subject to netting arrangements. 

30 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 34 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

The Corporation has entered into an interest rate exchange agreement (swap) with a counterparty in 

connection with the issuance ofLIBOR-Based Adjustable Rate Bonds within the Sales Tax Revenue Bonds 

Series 2007 A (the Adjustable Rate Bonds). The Adjustable Rate Bonds expose the Corporation to variability 

in interest payments due to changes in interest rates. Management believes that it is prudent to limit the 

variability of interest payments on the Adjustable Rate Bonds. To meet this objective, management entered 

into an interest rate swap agreement to manage fluctuations in cash flows resulting from interest rate risk. 

This swap effectively changes the variable rate cash flow exposure on the Adjustable Rate Bonds to fixed 

cash flows. Under the terms of the interest rate swap, the Corporation receives variable interest rate payments 

equal to the interest payment on the Adjustable Rate Bonds, and makes fixed interest rate payments, thereby 

creating the equivalent of a fixed rate debt. At June 30, 2015, the credit rating of the counterparty to this 

swap agreement was A-1 by Standard & Poor's. 

On July 1, 2014, Moody's issued a downgrade on the LIB OR 2007 A Bonds to a rating of Ba3. On September 

24, 2014, rather than terminate the Swap Agreement, the Corporation and GS entered into a new credit annex 

(the "2014 Credit Support Annex") as well as an Amendment to the ISDA Master Agreement (the "2014 

ISDA Amendment") to permit the Corporation to collateralize its obligations under the Swap Agreement 

and to amend the termination events thereunder. The impact of the new agreement was for the Corporation 

to post $12 million in collateral to GS, as well as set up a restricted account in which a portion of the collateral 

be deposited for the benefit of GS. In addition, from now until fiscal year 2018, COFINA is committed to 

post up to $15 million annually in additional collateral by March 15 of each year. Overt time, the maximum 

amount COFINA would have to post is $60 million. On January 28, 2015, COFINA posted the $15 million 

additional collateral due on March 31, 2015. As of June 30, 2015, the collateral amount held by GS is $27 

million. 

The fair value and notional amount of the derivative instrument outstanding at June 30, 2015, classified by 

type, was as follows: 

Floating 

Change in rate Maturity Receives Pars Cash 

Notional amount Fair value Fair value indicator date Ty~e Rate ...Tu!.:... Rate outflows 

(In thousands) On thousands) (in thousands) 

Hedging Derivative Instrument: 

$ 136,000 $ 53,200 $3,330 67%of3m 8/1/2057 Variable l.!01% Fixed 4.920% 5,210 

LIBOR olus 

0.93 

The fair value of the interest rate swap classified in Level 2 of the fair value hierarchy was estimated using 

the zero-coupon method. This method calculates the future net settlement payments required by the swap, 

assuming that the current forward rate implied by the yield curve correctly anticipates future spot interest 

rates. These payments are then discounted using the spot rates implied by the current yield curve for 

hypothetical zero-coupon bonds due on the date of each future net settlement on the swaps. 

(10) Contingency 

In connection with the termination of an interest rate exchange agreement (swap) with a notional amount of 

$218 million by the Corporation relating to its Sales Tax Revenue Bonds, Series 2007 A, the Corporation 

made a termination payment to the counterparty in November 2008. The counterparty subsequently asserted 

that it is entitled to a termination payment in excess of that paid by the Corporation in November 2008, plus 

interest at a default rate, amounting to approximately $64.0 million as of fiscal year end 2011. The 

31 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 35 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

counterparty alleged that the date of the termination notice used by the Corporation for purposes of 

calculating the termination payment was not in accordance with the agreement. In addition, the counterpmiy 

alleged that the termination payment should have been based on the value of replacement swaps entered into 

by the Corporation, which actually have different credit terms than those contained in the terminated swap. 

During the year ended June 3 0, 2011, the Corporation accrued $3 .4 million in connection with this matter. 

This amount is presented as accounts payables and accrued liabilities in the accompanying statement of net 

position ( deficit). 

The Corporation intends to contest this matter vigorously. Among other things, it is the opinion of the 

Corporation's management that, even assuming that the counterparty's allegations regarding improper 

termination are correct, the amounts claimed by the counterparty are not correct. Accordingly, management 

does not expect that the ultimate costs to resolve this matter will have a material adverse effect on its financial 

position or results of operations. 

(11) Subsequent Events 

Subsequent events were evaluated through September 17, 2018 to determine if any such events should either 

be recognized or disclosed in the 2015 basic financial statements. Management believes that the subsequent 

events disclosed below are intrinsically related to the financial statements of the Corporation. These might 

have been disclosed elsewhere in these financial statements, but management believes they require specific 

mentioning based on their relevance and materiality as a whole. 

Significant legislation and Other Events after Year End: 

a) Puerto Rico Oversight, Management and Economic Stability Act 

On June 30, 2016, the U.S. President signed the Puerto Rico Oversight, Management, and Economic 

Stability Act ("PROMESA"), which grants the Commonwealth and its component units' access to an 

orderly mechanism to restructure their debts in exchange for significant federal oversight over the 

Commonwealth's finances. In broad strokes, PROMESA seeks to provide Puetto Rico with fiscal and 

economic discipline through the creation of a control board, relief from creditors and lawsuits through 

the enactment of a temporaty stay on litigation, and two alternative methods to adjust unsustainable debt: 

(a) a voluntary debt modification process under Title VI of PROMESA, which establishes a largely outof court debt restructuring process through which modifications to financial debt can be accepted by a 

supermajority of creditors; and (b) a quasi-bankruptcy proceeding under Title III of PRO MESA, which 

establishes an in-court debt restructuring process substantially based upon incorporated provisions of 

Title 11 of the United States Code (U.S. Bankruptcy Code). Each of these elements are divided among 

PROMESA's seven titles. 

Title I of PROMESA established the Financial Oversight and Management Board for Pue1to Rico (the 

"Oversight Board"). See PROMESA § l0l(b). As stated in PROMESA, "the purpose of the Oversight 

Board is to provide a method for a covered territory to achieve fiscal responsibility and access to the 

capital markets." PROMESA § l0l(a). 

Title II of PRO MESA established the Fiscal Plan and Budget Certification process and compliance. This 

title sets forth the requirements for proposing and certifying fiscal plans and budgets for the 

Commonwealth and its instrumentalities. "Each fiscal plan serves as the cornerstone for structural 

32 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 36 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

reforms the Oversight Board deems necessary to ensure the territory, or instrumentality, will be on a 

path towards fiscal responsibility and access to capital markets." H.R. Rep. 114-602(1), 2016 WIL 

312480, at *45 (2016); PRIMESA § 201 (b )(1 ). 

On March 13, 2017, the Oversight Board approved and certified the fiscal plan of the Commonwealth 

and certain other governmental entities (the "Fiscal Plan"). The Fiscal Plan was revised and certified by 

the Oversight Board on May 31, 2017 (the "Revised Fiscal Plan"). The Fiscal Plan and the Revised 

Fiscal Plan contemplate that for each of the next 5 fiscal years (FY 2018-2023) some portion of the 

Pledged Sales Tax will be used by the Commonwealth for purposes other than payment of COFINA 

debt service. 

Title III of PROMESA establishes an in-court process for restructuring the debts of Puerto Rico and 

other United States territories that is modeled after the process under Chapter 9 of the U.S. Bankruptcy 

Code. In order to be a debtor under Title III, the territory and/or its instrumentalities must: (i) have an 

Oversight Board established for it or be designated a "covered entity"; (ii) have the Oversight Board 

issue a restructuring certification under PRO MESA section 206(b ); and (iii) "desire to effect a plan to 

adjust its debt.• PROMESA § 302. The Oversight Board has sole authority to file a voluntary petition 

seeking protection under Title III of PROMESA. See PROMESA § 304(a). As of the date hereof, the 

Oversight Board has commenced Title III cases for the Commonwealth, COFINA, PRHTA, ERS, and 

PREP A, as discussed below. 

In a Title III case, the Oversight Board acts as the debtor's representative and is authorized to take any 

actions necessary to prosecute the Title III case. See PRO MESA § 315. Immediately upon filing the 

Title III petition, Bankruptcy Code section 362 (which is incorporated into Title III cases under 

PROMESA) applies to automatically stay substantially all litigation against the debtor (the Title III 

Stay). After the Title III case is commenced, the Chief Justice of the United States Supreme Comt must 

designate a district court judge to sit by designation and preside over the Title III case. PRO MESA also 

provides that the commencement of a Title III case "does not limit or impair the powers of a covered 

territory to control by legislation or otherwise the exercise of the political or governmental powers of 

the territory or territorial instrumentality." PROMESA § 303. 

The core component of the Title III case is the confirmation of a plan of adjustment of the debts of the 

debtor. The Oversight Board has the exclusive authority to file and modify a plan of adjustment prior to 

confirmation. See PRO MESA § 312. In order to be confirmed, a proposed plan of adjustment must meet 

the requirements set forth under PRO MESA section 314. 

Title IV of PRO MESA established the Temporary Stay of Litigation, Government Reporting, and Other 

Miscellaneous Provisions. Pursuant to this title (PRO MESA section 405), the enactment of PRO MESA 

immediately and automatically imposed a temporary stay (the Title IV stay) from June 30, 2016 (the 

date of PROMESA's enactment) through February 15, 2017 of all "Liability Claim" litigation 

commenced against the Commonwealth and its instrumentalities after December 18, 2015. 

Title V of PROMESA established the position of the Revitalization Coordinator under the Oversight 

Board and provides a framework for infrastructure revitalization. 

33 ( continued) 

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Exhibit E Page 37 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

Title VI of PROMESA establishes an out-of-comi process for modifying Puerto Rico's debts. Under 

PRO MESA section 60l(d), the Oversight Board is authorized to establish "pools" of bonds issued by 

each Puerto Rico government-related issuer based upon relative priorities. 

Title VII of PROMESA sets forth the sense of Congress that "any durable solution for Puerto Rico's 

fiscal and economic crisis should include permanent, pro-growth fiscal reforms that feature, among other 

elements, a free flow of capital between possessions of the United States and the rest of the United 

States." 

b) Puerto Rico Emergency Moratorium and Financial Rehabilitation Act, Financial Emergency and Fiscal 

Responsibility of Puerto Rico Act and Related Executive Orders 

On April 6, 2016, the Commonwealth enacted Act. No. 21 of 2016, known as the Puerto Rico Emergency 

Moratorium and Rehabilitation Act (as amended, the Moratorium Act). Pursuant to the Moratorium Act, 

on June 30, 2016, the Governor signed an Executive Order, EO-2016-030 ("EO No. 2016-30"), 

declaring the Commonwealth to be in state of emergency and declaring a moratorium on the 

Commonwealth's obligation to make payments on bonds, and notes issued or guaranteed by the 

Commonwealth. 

On January 29, 2017, the Governor signed Act No. 5 of 2017, Pue11o Rico Fiscal Responsibility and 

Financial Emergency Act, superseding and amending Act No. 21 of 2016, Emergency Moratorium and 

Financial Rehabilitation of Puerto Rico Act. Act No. 5 of 2017 declares the Commonwealth to be in 

state of emergency and declaring a moratorium on the Commonwealth's obligation to make payments 

on bonds, and notes issued or guaranteed by the Commonwealth. EO 30 suspends any obligation of the 

Office of Management and Budget of the Commonwealth to include an appropriation in the proposed 

budget submitted to the Legislative Assembly for the payments of bonds issued by the Public Finance 

Corporation. 

c) Sales and Use Tax 

Effective on July 1, 2015, the Commonwealth Sales Tax increased from a current 6% to a 10.5%, as 

required by Act No. 72 of May 29, 2015, an amendment to the Puerto Rico Internal Revenue Code of 

2011, (the Act No. 72). The Act No. 72 also imposes a Commonwealth Sales Tax of 4% to professional 

and business-to business services rendered after September 30, 2015, until April I, 2016. The Act No. 

72 serves as a bridge mechanism between the actual SUT to an integrated new tax reform. As per Act 

No. 72, the new tax reform should incorporate certain vhtues of the general excise tax and the actual 

SUT to reach a Value-Added Tax (IV A, by its Spanish acronym) as the desirable consumption tax for 

Puerto Rico. Such tax ref01m emerges from the recommendations presented by the Alternatives for the 

Consumption Tax Transformation Commission. 

d) Civil Actions Filed by Several Bondholder Groups and Other Creditors Against the Corporation. 

On November 4, 2016, plaintiffs in Lex Claims, LLC v. Garcia-Padilla (Case No. 16-2374-FAB (D.P.R. 

July 20, 2016)), who are beneficial owners of General Obligation debt, filed a Second Amended 

Complaint, adding the Corporation as a defendant in their action against Commonwealth officials. The 

Second Amended Complaint requested two declaratory judgments that challenge the legal validity of 

34 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 38 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

the Corporation: (1) a declaration that the portion of the SUT pledged to the Corporation for purposes 

of debt service on the Corporation's sales tax revenue bonds (the "Pledged Sales Tax") constitutes 

"available resources" under Article VI, Section 8 of the Pue1to Rico Constitution and that such funds 

cannot be deposited with the Corporation or its Bondholders; and (2) a declaration that the 

Commonwealth is obligated to afford the General Obligation debt absolute priority, including priority 

over required deposits with the Corporation and its Bondholders. On May 17, 2017, the District Court 

stayed the Lex Claims case until further com1 order. 

On June 9, 2017, various parties and patties in interest, including the Trustee, the Senior Bondholders' 

Coalition, National Public Finance Guarantee Corp., Whitebox Asymmetric Partners, L.P., Ambac 

Assurance Corp., and Assured Guaranty Corp. (the "Requesting Parties"), served discovery requests and 

subpoenas on the Oversight Board and various Government entities, affiliates, and individuals. The 

subpoenaed entities and individuals served their Responses and Objections on June 21, 2017, and 

produced documents in response to the requests and subpoenas between July and October. On July 24 

the Requesting Parties served subpoenas and/or notices of deposition on the Oversight Board and the 

Governmental entities and individuals. The subpoenaed entities and individuals served their Responses 

and Objections to the deposition subpoenas on August 7 and August 8, 2017. In lieu of depositions, 

F AF AA and the Oversight Board each submitted binding Statements of Facts. 

On November 6, 2017, various patties and patties in interest, including the Trustee, the Senior 

Bondholders' Coalition, Whitebox Asymmetric Partners, L.P., Ambac Assurance Corp., the Mutual 

Fund Group and Puerto Rico Funds, and Assured Guaranty Corp., filed motions for summary judgment. 

Summary judgment briefing was completed on January 5, 2018. The Court has not yet ruled on the 

motions. 

On March 22, 2018, several credit unions chartered under Puerto Rico law filed an adversary complaint 

against the Commonwealth, the Oversight Board, other Commonwealth's instrumentalities including 

the Corporation seeking a declaratory judgment that their Pue1to Rico debt holdings are not 

dischargeable and monetary damages for alleged fraud in issuing and encouraging local credit unions to 

purchase Puerto Rico debt service instruments. On August 6, 2018, the Oversight Board, the 

Corporation, the Commonwealth of Puerto Rico and several of its instrumentalities filed a notice of 

motion to dismiss the complaint in this adversary proceeding, along with an accompanying 

memorandum of law. Also on August 6, 2018, the Government Development Bank filed a separate 

motion to dismiss. In addition, several patties filed joinders to the motions to dismiss or were granted 

leave from the Court to file joinders at later dates. The Court ordered that any objection to the motions 

to dismiss filed in this adversaty proceeding and joinders thereto must be filed by November 6, 2018 

and any reply must be filed by January 9, 2019. The Comt will thereafter take the motions to dismiss 

on submission unless determined otherwise. 

e) Oversight Board Commencement of Title III Case, Mediation in the Title III Case, and Key Contested 

Motions in the Title III Case 

On May 3, 2017, in the United States District Comt for the District of Puerto Rico (the "Comt"), the 

Oversight Board commenced a Title III (bankruptcy) case under PROMESA for the Commonwealth. 

On May 5, 2017, the Oversight Board followed with a similar filing for the Corporation. 

35 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 39 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Pue11o Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

On May 16, 2017, the Bank of New York Mellon (the "Trustee"), in its capacity as trustee for the sales 

tax revenue bonds issued by the Corporation, filed an adversary complaint in the Corporation's Title III 

proceeding for interpleader to preserve the funds held by the Trustee in trust pending resolution by the 

Court of all disputes with respect to ownership of the funds. The Trustee's adversary complaint 

commenced the adversary proceeding captioned The Bank of New York Mellon v. Puerto Rico Sales 

Tax Financing Corporation (COFINA), et. al. (Adv. Pro. No. 17-00133-LTS (D. P.R. May 16, 2017)). 

On May 30, 2017, the Court ordered the Trustee, commencing with the $16.3 million bond payment due 

on June 1, 2017, to interplead and hold all disputed funds in the accounts into which they had been 

deposited, on behalf of the party or parties ultimately determined by the Com1 to be entitled to such 

funds. The Court's order allowed creditors to litigate competing claims to the funds held by the Trustee. 

j) The Commonwealth-COFINA Dispute 

The Official Committee of Unsecured Creditors of the Commonwealth of Pue11o Rico as Agent of the 

Commonwealth of Puerto Rico v. Bettina Whyte as Agent of the Puerto Sales Tax Financing Corporation 

(In re: The Financial Oversight and Management Board for Puerto Rico, Adv. Pro. No. 17-00257-LTS 

(D.P.R. September 8, 2017). 

On August 10, 2017, the Court issued an order to approve a protocol for resolving the disputes between 

the Commonwealth and the Corporation (the "Commonwealth-COFINA Dispute") and appointing 1) 

an agent for the Oversight Board as debtor's representative for the Commonwealth ( the "Commonwealth 

Agent"); and 2) an agent for the Oversight Board as the debtor's representative for COFINA (the 

CO FINA Agent). 

On September 8, 2017, the Commonwealth Agent filed a complaint asserting that the SUT revenue 

pledged by COFINA bond debt is "the exclusive prope11y of the Commonwealth". The complaint 

alleges that the CO FINA enabling legislation "did not transfer to CO FINA present ownership of future 

SUT revenues" and did not assign to COFINA the Commonwealth right to receive such revenues. The 

complaint argues that the transfer to COFINA of SUT revenues was at most an unsecured promise to 

transfer revenues in the future. The complaint further alleges that even if the transfer of future SUT 

revenues to COFINA had any legal effect, such transfers are merely a grant of a security interest in 

acquired prope11y governed by Article 9 of the Uniform Commercial Code. The complaint alleges that 

any security interest of COFINA in SUT revenues is unenforceable against the Commonwealth or, in 

the alternative, is unperfected and therefore avoidable and otherwise subordinate to the rights of the 

Oversight Board as trustee. The Complaint further asserts that the Commonwealth Title III case cuts off 

any security interest. 

The Complaint also alleges that COFINA's structure is unconstitutional because it circumvents the 

Puerto Rico Constitution's debt limitations. 

F AF AA filed a motion to dismiss certain claims of the Commonwealth Agent and counterclaims of the 

CO FINA Agent on the ground that they exceeded the scope of their authority. Document production 

and discovery were completed in February 2018. On February 21, 2018, patties filed summary judgment 

motions. The Court heard oral arguments on April 10, 2018 and took the motions under advisement. 

36 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 40 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

On February 26, 2018, the COFINA Agent filed a motion to ce1tify five questions to the Puerto Rico 

Supreme Court regarding whether the COFINA enabling legislation transferred to COFINA present 

ownership of future SUT revenues, and whether the enabling legislation is unconstitutional because it 

allegedly violates various provisions of the Pue1to Rico Constitution. Various COFINA bondholder 

groups joined in the motion in whole or in part; the Commonwealth Agent, the Oversight Board, and the 

Ad Hoc Group of general obligation bondholders opposed the motion in whole or in part. The Court 

heard oral arguments on May 9, 2018, and took the motion under advisement. 

On May 14, 2018, certain Commonwealth creditors and certain Corporation's creditors announced a 

purpo1ted settlement of the Commonwealth and the Corporation dispute. Neither FAFAA, nor the 

Oversight Board, nor the named parties in this adversary proceeding joined the purp01ted settlement. 

On June 5, 2018, the Commonwealth Agent and the Corporation Agent filed a joint motion requesting 

the Court to delay any decision on the summary judgement motions for 60 days in light of a proposed 

settlement in principle that they had reached (the proposed settlement). The proposed settlement was 

publicly disclosed on June 7, 2018. 

Under the proposed settlement (which is subject to definitive documentation as well as Title III Court 

approval), a portion of the 5.5% SUT revenue currently conditionally allocated to the Corporation -

which portion is referred to as Pledge Sales Tax Base Amount (PSTBA) - would be shared between the 

Corporation and the Commonwealth. The PSTBA is the base amount of SUT revenue allocated to the 

Corporation that the Corporation must receive under the Act No. 91 before that balance of the 5.5% of 

SUT revenue allocated to the Corporation can be made available to the Commonwealth. Currently, the 

PSTBA is approximately $783.2 million for fiscal year 2019 and grows 4% annually until it reaches 

approximately $1.85 billion in fiscal year 2041. The proposed settlement would divide the PSTBA so 

that the Corporation receives 53 .65% of the PS TBA starting in fiscal year 2019 while the 

Commonwealth receives the other 46.35% for the benefit of holders' claims, subject to certain 

restrictions and exceptions. The balance of the 5.5% SUT revenue conditionally allocated to the 

Corporation would continue to flow to the Commonwealth. The Proposed settlement also allocates to 

the Corporation 100% of ce1tain previously collected SUT revenue held at Bank of New Yark Mellon 

(trustee) that is the subject of litigation. This description is a summary of the terms of the proposed 

settlement. For a full description of its terms, readers are directed to the language of the proposed 

settlement, which is a public document. 

As discussed above court appointment agents for general obligation and COFINA creditors had already 

reached an agreement in principle in June 2018 regarding the allocation of future sales tax generated in 

Pue1to Rico. On August 8, 2018, the Oversight Board announced that will honor the terms of that 

agreement that appears to resolve the lingering dispute between senior and subordinate sales tax revenue 

bondholders. Senior and subordinate COFINA bondholders would both receive senior lien bonds in 

exchange for existing securities. The Oversight Board expects existing senior lien COFINA holders to 

recover between 93-95 cents on the dollar. Subordinate bondholders' recoveries are expected to range 

between 56-58 cents on the dollar. The mono-line bond insurers have agreed to the terms of the 

settlement. 

On August 29, 2018, the Oversight Board and the Government of Puerto Rico announced that they have 

entered into a plan support agreement and term sheet with a significant portion of the COFINA 

bondholders and other stakeholders under the terms and conditions of the proposed CO FINA bondholder 

37 ( continued) 

Case:17-03283-LTS Doc#:4299-5 Filed:11/16/18 Entered:11/16/18 17:19:58 Desc:

Exhibit E Page 41 of 42
PUERTO RICO SALES TAX FINANCING CORPORATION 

(A Component Unit of the Commonwealth of Puerto Rico) 

Notes to Basic Financial Statements 

June 30, 2015 

deal announced on June 7, 2018 and agreed upon on August 8, 2018. The proposed settlement, which 

provides nearly 32% reduction in COFINA debt, gives Puerto Rico approximately $17.5 billion in debt 

service savings and enables bondholders to receive a significant recove1y, it is still subject to approval 

by the Title III Comt. 

g) Other specific subsequent events that relates to the Corporation 

On April 28, 2017, the Bank's management concluded that an orderly wind-down of its operations and 

consensual negotiations with its creditors would be the optimal path to mitigate the impact to its 

stakeholders (municipalities, depositors, and other creditors, etc.). The Bank's operational wind-down 

was completed on March 23, 2018, with all fundamental operations having ceased or transferred to other 

Commonwealth's instrumentalities and workforce restructuring completed with minimal human 

resources remaining to conclude legal and operational matters through fiscal year 2019. 

Hurricane Maria, a category 4 storm, made landfall in Puerto Rico on September 20, 2017, less than two 

weeks after Hurricane Irma, a category 5 storm, passed north of Puerto Rico leaving over a million local 

residents without electric power. Hurricane Maria caused catastrophic prope1ty damages throughout 

Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and 

public facilities. In addition, it caused flooding in some areas, displaced many local residents, and 

severely disrupted business operations and economic activities. Catastrophic damages to the island were 

approximately $94 billion. 

*** 

38 

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Exhibit E Page 42 of 42