Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 1 of 34 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO. Defendant.

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1 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 1 of 34 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO AMBAC ASSURANCE CORPORATION, -against- Plaintiff, Civil No. 16-cv- PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY, Defendant. COMPLAINT Plaintiff Ambac Assurance Corporation ( Ambac ), by and through its attorneys Ferraiuoli LLC, and Milbank, Tweed, Hadley & McCloy LLP, for its Complaint against Defendant Puerto Rico Highways and Transportation Authority ( PRHTA or the Authority ), allege as follows: NATURE OF THIS ACTION 1. PRHTA has been in severe financial distress for several years. In performing PRHTA s audit for fiscal years 2013 and 2014, PRHTA s independent auditors questioned the Authority s ability to continue as a going concern, noting that the Authority could not meet its obligations as they came due. PRHTA itself admitted that future defaults may be unavoidable. Recent executive orders issued by the Governor of the Commonwealth of Puerto Rico (the Commonwealth ) requiring clawback of funds pledged to PRHTA have further exacerbated PRHTA s dire financial condition. Despite its precarious state, PRHTA recently agreed to sell assets worth over $100 million, even though, under Puerto Rico law, it has no control over the use of the proceeds from that sale. Plaintiff does not challenge the terms of the transaction (the

2 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 2 of 34 Concession Extension ) and are not seeking any relief that would have the effect of unwinding the Concession Extension. Nevertheless, PRHTA s sale of valuable assets knowing that any proceeds would likely be siphoned off by the Commonwealth government constitutes the latest in a series of breaches of fiduciary duties owed to Plaintiff under PRHTA s enabling act, see 9 L.P.R.A. 2013(a)(2), and contractual duties owed to Plaintiff under the PRHTA resolution authorizing the issuance of certain PRHTA bonds. 2. On or about April 21, 2016, the Authority entered into the Concession Extension with its public-private partnership ( P3A ) partner Autopistas Metropolitanas de Puerto Rico LLC ( Metropistas ), agreeing to amend an existing concession agreement for two toll highways in Puerto Rico (PR-22 and PR-5) and extend the lease by ten years. PRHTA has not released information stating, or even suggesting, that the Concession Extension was a time-sensitive corporate opportunity that would be lost if not undertaken now. Through this transaction, PRHTA agreed to reduce, from 50% to 25%, its allocated share of toll revenues generated by the dynamic-pricing toll system on PR-22. In exchange, the Commonwealth of Puerto Rico and not PRHTA stands to receive $115 million. Indeed, the funds that PRHTA raised through the Concession Extension are likely to go right out the door conferring no benefit on the Authority or its bondholders. Because it monetized its interest in PR-22 and PR-5 through a P3A, PRHTA does not have the right to retain, or even to direct the use of, the consideration that it received. Instead, under Section 17 of Act No , the Governor of Puerto Rico will decide (in consultation with the Government Development Bank for Puerto Rico ( GDB ) and the Office of Management and Budget ( OMB )) how to allocate the proceeds of the Concession Extension. See 27 L.P.R.A And while those proceeds could be permissibly allocated to PRHTA, Section 17 expressly permits the Governor to direct the proceeds of a privatization -2-

3 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 3 of 34 transaction like this one to a host of purposes of the Commonwealth and to recipients other than PRHTA including to pay down Commonwealth or GDB debt. See id.; see also Puerto Rico Mulls Use of $115 Million Raised in Highway Deal as Defaults Loom, REORG RESEARCH, Apr. 22, 2016 (speculating, prior to the declaration of moratorium with respect to the portion of the $422 million debt payment GDB was bound to make on May 1, 2016, that the Governor might use the sale proceeds to fund such debt payment by GDB). 3. Public information about the Concession Extension is limited. The transaction has reportedly closed, but the status of the proceeds has not been disclosed. On Friday, April 29, 2016, counsel to Plaintiff delivered a letter to PRHTA s counsel requesting confirmation that the Authority was maintaining, and would continue to maintain, the proceeds of the transaction for the benefit of PRHTA and its bondholders. The following Monday, May 2, 2016, counsel to PRHTA stated in response that the funds were currently being held by the Economic Development Bank for Puerto Rico [ EDB ] in the name of the Authority. The letter ignored Plaintiff s request for confirmation that the Authority would continue to maintain the proceeds for the benefit of PRHTA and its bondholders, providing no assurance that the funds would remain in the EDB account or otherwise be protected from transfer. 4. PRHTA s lack of transparency with respect to this transaction is consistent with its ongoing refusal for well over a year to comply with its contractual obligations to provide basic financial information to bondholders and Plaintiff, or to provide trust balances and an accounting of how much revenue has been clawed back from PRHTA pursuant to the Governor s executive orders. Plaintiff, as insurer of over $472 million (net of reinsurance) of PRHTA bonds currently outstanding, has significant information rights with respect to PRHTA arising from agreements regarding bond insurance entered into between PRHTA and the fiscal -3-

4 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 4 of 34 agent for the PRHTA bondholders (the Ambac Insurance Agreements ) and/or the PRHTA resolutions authorizing the issuance of such bonds. Plaintiff has made repeated requests for information from PRHTA but has received little or no information in response. Publicly available information suggests that PRHTA can make its next bond payments (due July 1, 2016) only by dipping into a special reserve fund that the Authority would not need to utilize if it were financially sound (though this has proven impossible to confirm due to PRHTA s intransigence in responding to information requests). Whether PRHTA will be able to make subsequent bond payments is very much in question. If it does not, then Plaintiff, as an insurer of PRHTA bonds, will be required to do so for the bonds it has insured. 5. The decision to enter into the Concession Extension at this time is the latest instance of questionable behavior by PRHTA. The Authority s treasurer was indicted in 2014, pleaded guilty to federal bribery charges in October 2015 and was sentenced to a year in prison. PRHTA delayed half a year in releasing its audited 2014 financial statements and, when finally released, those financial statements disclosed that the Authority s independent auditors had included a going concern qualification in their audit opinion and had identified five material weaknesses in PRHTA s internal controls over financial reporting. PRHTA has already defaulted on over $500 million in debt owed to GDB. And, as noted, PRHTA has repeatedly breached its contractual and statutorily mandated obligations to provide Plaintiff and other PRHTA stakeholders information concerning PRHTA s financial condition. Because of these failures, Plaintiff has not been able to assess PRHTA s true financial condition, and the extent to which PRHTA has complied with its legal obligations as set forth in various bond resolutions governing the issuance of PRHTA bonds. -4-

5 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 5 of The crisis at PRHTA has reached a breaking point. PRHTA and its directors and officers have proven themselves unwilling or unable to fulfill their fiduciary and contractual duties to PRHTA s bondholders. Coupled with the suspect timing of its decision to enter into the Concession Extension, PRHTA s failure to make proper disclosure and its continuing refusal to comply with its legal obligations to allow inspection of its books and records underscore the need for immediate relief from this Court in the form of (1) expedited discovery so that Plaintiff can ascertain the full extent of PRHTA s malfeasance; and (2) the appointment of a provisional receiver over PRHTA to avoid further irreparable harm to PRHTA, its bondholders, and Plaintiff. THE PARTIES 7. Plaintiff Ambac is a Wisconsin-domiciled stock insurance corporation with its principal place of business at One State Street Plaza, New York, New York Plaintiff is a monoline insurer that provides financial guarantees to the United States and global public finance, infrastructure, and structured finance markets. 9. Plaintiff brings this action to protect its rights under the laws and documents under which certain PRHTA bonds were issued and insured, as described below. 10. Defendant PRHTA is a public corporation of the Commonwealth of Puerto Rico, with full legal capacity to sue and be sued pursuant to 9 L.P.R.A. 2004(g), and maintains its principal executive offices at Centro Gubernamental Minillas, South Tower, 17th Floor, in San Juan, Puerto Rico. JURISDICTION AND VENUE 11. This Court has subject matter jurisdiction under 28 U.S.C. 1332, as the parties are of diverse citizenship and the amount in controversy exceeds $75,

6 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 6 of PRHTA is not entitled to sovereign immunity from suit. See, e.g., Redondo Constr. Corp. v. Puerto Rico Highway and Transp. Auth., 357 F.3d 124 (1st Cir. 2004). 13. This complaint presents an actual controversy that is ripe for adjudication. As described below, PRHTA is in severe financial distress. PRHTA is currently subject to clawback of its funds and has already defaulted on over $500 million in debt to GDB. As such, PRHTA faces a significant likelihood of default on future bond payments. Notwithstanding these facts, PRHTA entered into a transaction monetizing PRHTA assets, the proceeds of which will likely be used for purposes unrelated and providing no benefit to PRHTA, or to repay subordinated debt held by GDB, or otherwise for purposes that will negatively impact PRHTA s senior bondholders and Plaintiff, in violation of PRHTA s fiduciary and contractual duties. Plaintiff is required to make payment on claims of holders of insured PRHTA bonds pursuant to its bond insurance policies in the event PRHTA defaults on its payments to such holders. Plaintiff seeks appointment of a provisional receiver to prevent further, irreparable harm to it. 14. Venue is proper in this District under 28 U.S.C. 1391(b)(1) and (c)(2) because Defendant is a resident of this District. I. Plaintiff Insures Bonds Issued by PRHTA A. Financial Guaranty Insurance 15. Plaintiff is a leading provider of financial guaranty insurance, by which an insurer guarantees scheduled payments of principal and interest as and when due on a bond or other obligation. Plaintiff insures scheduled principal and interest payments on municipal, public infrastructure, and structured financings in the United States and around the world. Under relevant provisions of the bond documents and bond insurance policies, and applicable law, -6-

7 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 7 of 34 payment by providers of financial guaranty insurance neither satisfies nor discharges an issuer s obligation to pay. To the extent insurers make such payments, they become owners of the subject bonds and/or become subrogated to the rights of the bondholders, effectively stepping into their shoes. 16. One reason governments and municipalities, including PRHTA, have historically taken advantage of financial guaranty insurance is that the insurance of their principal and interest payment obligations may have the effect of significantly enhancing their ability to raise funds. Financial guaranty insurance is especially important for an issuer such as PRHTA which has and will have significant borrowing needs, notwithstanding its weak credit rating. Plaintiff s insurance has permitted PRHTA to issue over $3 billion in bonds in a more costeffective manner, which, in turn, has permitted PRHTA, the Commonwealth, and other Commonwealth instrumentalities to implement important infrastructure projects across Puerto Rico. Among other projects, the proceeds of PRHTA bonds have been used to finance the construction of and necessary repairs to numerous toll highways and connecting roads, including PR-5, PR-20, PR-22, PR-52, and PR-53, and the construction, operation, and maintenance of Tren Urbano, a rapid transit system serving the San Juan metropolitan area. B. PRHTA 17. PRHTA is a public corporation created by Act No (the PRHTA Enabling Act ) to assume responsibility for the construction of highways and other transportation systems in Puerto Rico. See 9 L.P.R.A Under the PRHTA Enabling Act, PRHTA has the power to sue and be sued, to make contracts and to execute all instruments necessary or incidental in the exercise of any of its powers, and to issue bonds. 9 L.P.R.A. 2004(g), (h), (l). Pursuant to the PRHTA Enabling Act, PRHTA issued the PRHTA bonds -7-

8 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 8 of 34 under resolutions executed in 1968 (the 1968 Resolution ) and 1998 (the 1998 Resolution and, together with the 1968 Resolution, the PRHTA Resolutions ). The PRHTA bonds have an outstanding principal amount of $4.6 billion. 18. PRHTA s Board of Directors is hopelessly conflicted. For example, Melba Acosta-Febo is the President of GDB and a member of the Board of Directors of PRHTA. Juan Zaragoza Gómez is the Secretary of the Treasury of the Commonwealth and a member of the Board of Directors of PRHTA. Luis García Pelatti is President of the Planning Board of the Commonwealth and a member of the Board of Directors of PRHTA. 19. Pursuant to the PRHTA Enabling Act and the PRHTA Resolutions, the PRHTA bonds are secured by PRHTA s property and revenues, as well as by any tax made available to [PRHTA] by the Commonwealth, authorized by the Commonwealth to be pledged to the payment of the principal and interest of bonds, and pledged by PRHTA to such payments. See 9 L.P.R.A. 2004(l). More specifically, the PRHTA bonds are secured by a lien on (i) revenues derived from PRHTA s toll facilities ( Tolls ); (ii) gasoline, diesel, crude oil, and other excise taxes levied by the Commonwealth (the Excise Taxes ); and (iii) motor vehicle license fees (the Vehicle Fees, and together with the Tolls and Excise Taxes, the PRHTA Pledged Revenues ). PRHTA s rights and powers under the PRHTA Enabling Act include the right and the power to secure the PRHTA bonds through a pledge of the PRHTA Pledged Revenues. See 9 L.P.R.A. 2004(l); see also id. 2012(e)(1), (h). 20. Plaintiff has insured over $472 million (net of reinsurance) of PRHTA bonds currently outstanding. Under the Ambac Insurance Agreements, Plaintiff is a third-party beneficiary of many of the PRHTA bonds it insures and may enforce all rights, remedies, and claims with respect to such Bonds. See, e.g., Series AA Ambac Insurance Agreement 10; -8-

9 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 9 of 34 Series H Ambac Insurance Agreement 10; Series BB/L Ambac Insurance Agreement 7. In addition, Plaintiff will become the owner of any bonds for which it pays a claim in respect of a default on principal, and, upon the making of any payment in respect of the bonds, will be assigned, and become subrogated to, the rights of the holders of such bonds. Series AA Ambac Agreement Regarding Bond Insurance 10; Series H PRHTA Agreement Regarding Bond Insurance 10. II. PRHTA Owes Fiduciary and Contractual Duties to its Creditors Including Plaintiff 21. Under the PRHTA Enabling Act, PRHTA is required to account as if it were the trustee of an express trust. 9 L.P.R.A. 2013(a)(2). The duties and responsibilities of trustees are broadly defined by statute. See, e.g., 31 L.P.R.A. 2569, 2573, As part of its obligations to account as if it were the trustee of an express trust, PRHTA is required to adopt a high standard of loyalty and good faith, and owes fiduciary duties to its bondholders. 23. Furthermore, the 1998 Resolution provides that no contract or contracts will be entered into or any action taken by which the rights of... the bondholders might be impaired or diminished Resolution 611. Therefore, under the 1998 Resolution, PRHTA is contractually obligated not to enter into any contract that would impair or diminish PRHTA bondholders rights. 24. As noted above, under various insurance agreements applicable to PRHTA bonds, Plaintiff is a third-party beneficiary of PRHTA s contractual obligations concerning such bonds and is entitled to enforce all rights, remedies, and claims available to PRHTA bondholders, 1 The duties of trustees for trusts constituted on or after August 31, 2012 are defined by Act No (codified at 32 L.P.R.A aa). -9-

10 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 10 of 34 including the right to commence litigation. See supra 20. Therefore, Plaintiff has standing to bring the claims asserted herein. III. Worsening Financial Condition of the Commonwealth, PRHTA and GDB A. The Commonwealth s Fiscal State 25. On June 28, 2015, Puerto Rico Governor Alejandro García Padilla publicly stated that the Commonwealth was in a death spiral and acknowledged that it and its municipalities could not pay their roughly $72 billion in debts. Michael Corkery and Mary Williams Walsh, Puerto Rico s Governor Says Island s Debts are Not Payable, N.Y. TIMES, June 28, 2015, at A1. 2 Officers and representatives of the Commonwealth have repeatedly stated that the Commonwealth is in a state of fiscal emergency. B. Clawback of Funds 26. In response to the reported fiscal emergency, the Governor has issued multiple executive orders directing the Puerto Rico Department of the Treasury to divert certain funds pledged for repayment of the bonds of various municipalities away from their intended use and to the Commonwealth s general fund, reportedly for application to payments on public debt. These executive orders are made under color of certain provisions in the Constitution of the Commonwealth of Puerto Rico which provide that if, in a given fiscal year, revenues are insufficient to make payments on public debt (debt guaranteed by the faith and credit of the Commonwealth), interest and principal payments due on the public debt must be made before any other disbursements. 3 2 Available at are-not-payable html?_r=0. 3 Plaintiff has challenged the constitutionality of these executive orders in a related case pending before this Court. See Assured Guaranty v. García Padilla, No. 16-cv-1037 (D.P.R.). -10-

11 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 11 of The Governor issued Administrative Bulletin No. OE (the First Executive Order ) on November 30, 2015, which implemented the clawback of funds from certain public corporations. The First Executive Order declares that there are insufficient funds to pay all appropriations in fiscal year 2016, and directs the Secretary of the Treasury to (inter alia) withhold funds from PRHTA intended for application to the PRHTA bonds. 28. On information and belief, the Secretary of the Treasury has diverted revenues from PRHTA pursuant to the First Executive Order. 29. The clawback of revenues substantially undermines PRHTA s ability to fund its operations, as it is obligated to do under the 1998 Resolution. For example, under Section 604 of the 1998 Resolution, PRHTA covenants that it will operate or cause to be operated the Toll Facilities, any Mass Transit Facilities and all other Transportation Facilities that it may from time to time operate or cause to be operated in an efficient and economical manner, that it will at all times maintain or cause to be maintained such Transportation Facilities in good repair and in sound operating condition and that it will make or cause to be made all necessary repairs, renewals and replacements thereto to restore such Facilities to such repair and condition. Collectively, Toll Facilities, Mass Transit Facilities and Transportation Facilities encompass all the facilities built by bond proceeds, and the property used in connection with the operation of mass transportation systems, whether or not financed by bond proceeds or directly operated by the Authority. 30. Accordingly, the clawback eliminates a key source of operational funding for PRHTA and exacerbates PRHTA s operating losses. PRHTA was created and statutorily mandated to improve the Commonwealth s lagging transportation infrastructure, in part, because that infrastructure is essential to the people and the economic growth of Puerto Rico. -11-

12 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 12 of 34 9 L.P.R.A It was therefore irresponsible for PRHTA to sell assets that could have been used to meet its operational requirements when it knew that it would have no control over the proceeds of the sale, and the loss of those proceeds would render it unable to fulfill its critical statutory mandates. C. PRHTA s Financial Distress 31. Even before the clawback was implemented, PRHTA was in severe financial distress. 32. When opining on PRHTA s Audited Financial Statements for the years ended June 30, 2013 and June 30, 2014 ( PRHTA 2013/14 Audit ), PRHTA s independent auditor, Ernst & Young, LLP ( E&Y ), expressed substantial doubt about [PRHTA s] ability to continue as a going concern. PRHTA 2013/14 Audit at 2. 4 E&Y further stated that [t]he Authority has significant recurring losses from operations and does not have sufficient funds available to fully repay its various obligations as they come due. Id. at 2; see also id. at As the Commonwealth and GDB are also under severe financial strain, 5 the Commonwealth and GDB cannot be expected to aid PRHTA in repaying its debts, funding its operations, or complying with its bond covenants, as they have in the past. Accordingly, PRHTA has admitted that future defaults on the Authority s obligations may not be avoided. PRHTA 2013/14 Audit at PRHTA is currently subject to clawback of its funds and has already defaulted on over $500 million in debt to GDB. As such, PRHTA faces a significant likelihood of default 4 Available at documents/prhta-afs-fy2014.pdf. 5 See Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez, No (Dkt. No. 141), at 1 (D.P.R. Mar. 28, 2015) (describing the financial distress of the Commonwealth and GDB); PRHTA 2013/14 Audit at 85 (the Commonwealth and GDB are experiencing significant financial difficulties and may be unable to continue to... provide the necessary liquidity to the Authority as and when needed ). -12-

13 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 13 of 34 on future bond payments. See PRHTA 2013/14 Audit at 23 ( [T]he Authority does not currently have sufficient funds available to fully repay its various obligations as they come due.... [F]uture defaults on the Authority s obligations may not be avoided. ). 35. Because PRHTA has breached its contractual obligations to provide Plaintiff with certain financial information (see infra 65-84), Plaintiff does not have a complete picture of PRHTA s true financial condition. However, PRHTA has bond payments of $233 million due on July 1, Publicly available information suggests that PRHTA can make those payments only by drawing on a reserve fund that the Authority would not need to utilize if it were financially healthy, though it is not clear whether sufficient monies remain in such reserve fund. Whether PRHTA can make bond payments due after July 1 is an open question. If PRHTA fails to make those payments, Plaintiff will be forced to make payments to its insureds on account of any claimed deficiency. D. GDB s Financial Distress 36. GDB is also in severe financial distress. As noted in a recent decision by Judge Fusté, the Commissioner of Financial Institutions recently found GDB to be insolvent (though the Court declined to directly adopt this finding). Wal-Mart Puerto Rico, Inc. v. Zaragoza- Gomez, No (Dkt. No. 141), at 17 (D.P.R.). 37. GDB recently faced a $422.8 million debt payment due on May 1, Puerto Rico Treasury Secretary Juan Zaragoza, also a director of GDB, had already stated that GDB did not have sufficient liquidity to make this payment. Puerto Rico Treasury Chief: GDB Under Constant Evaluation, REORG RESEARCH, March 29, On the evening of May 1, 2016, the Governor signed an executive order declaring a moratorium on GDB s $422.8 million May 1 debt payment. See Administrative Bulletin No. -13-

14 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 14 of 34 OE (Apr. 30, 2016); Puerto Rico Governor Declares Moratorium on $422.8 Million GDB Payment, REORG RESEARCH, May 1, In declaring this moratorium, the Governor acted under color of the recently enacted Act No of April 6, 2016, known as the Puerto Rico Emergency Moratorium and Fiscal Rehabilitation Act (the Moratorium Act ), which permits the Governor to declare an emergency moratorium on debt payments via executive order. 39. Just after midnight on May 2, 2016, GDB announced that it had reached a framework restructuring agreement with an ad hoc group of noteholders (the Ad Hoc GDB Noteholders ) holding approximately $900 million of approximately $4 billion in GDB debt, subject to participation by 100% of GDB noteholders. GDB Ad Hoc Group Agrees to Framework Deal of 53% Haircut on Old Notes, REORG RESEARCH, May 2, Certain of the Ad Hoc GDB Noteholders reportedly entered into a 30-day forbearance agreement on GDB s May 1 payment. Id. 40. Later in the afternoon of May 2, 2016, the Governor announced that GDB would default on $367 million of the $422.8 million May 1 debt payment. E. GDB s Loans to PRHTA 41. According to PRHTA s most recent audited financial statements, as of June 30, 2014, GDB had extended over $1.8 billion in credit to PRHTA. See PRHTA 2013/14 Audit at Reports released by GDB indicate that, as of September 30, 2014, PRHTA owed GDB approximately $2 billion. See Government Development Bank for Puerto Rico, Special Liquidity Update, October 17, 2014, at Pursuant to Sections 602 of the PRHTA Resolutions, PRHTA is prohibited from securing any indebtedness with a lien on the PRHTA Pledged Revenues that is senior to or on parity with the lien on the PRHTA Pledged Revenues securing the bond debt, other than in -14-

15 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 15 of 34 certain limited circumstances. The GDB loan must be treated as subordinate to the bond debt. The subordinate nature of this loan is recognized by others in the marketplace. 6 As described herein (see infra 44-53), by electing to enter into the Concession Extension at this time, PRHTA has wrongfully enabled the potential diversion of PRHTA assets to the benefit of the Commonwealth or GDB (whose President also serves on PRHTA s Board of Directors), potentially allowing its junior debt to be prioritized over its senior debt to the detriment of its senior creditors, including Plaintiff and injuring its ability to comply with its operational covenants under the 1998 Resolution and to fulfill its mandate as set forth in PRHTA s Enabling Act. In addition to being irresponsible and a breach of PRHTA s duties to its bondholders and Plaintiff, such actions constitute a breach of Section 611 of the 1998 Resolution, which, as noted, prohibits PRHTA from entering into any contract or taking any action by which the rights of... the bondholders might be impaired or diminished Resolution As of June 30, 2014 (the date of PRHTA s most recently available audited financial statement), PRHTA had defaulted on approximately $590 million owed to GDB. See PRHTA 2013/14 Audit at 16. IV. The Concession Agreement and Extension A. The Puerto Rico Public-Private Partnerships Authority 44. In 2009, the Puerto Rico Legislative Assembly (the Legislative Assembly ) passed Act No , the Public-Private Partnership Act ( Act 29 ) (codified at 27 L.P.R.A ), with the mission of promot[ing] the use of Public-Private Partnerships as a development strategy. Act 29, Statement of Motives. Act 29 creates the Puerto Rico Public- 6 See, e.g., Puerto Rico General Obligation Debt Rating Lowered to B from BB on Potential Inability to Meet Debt Commitments, STANDARD & POOR S, Feb. 12, 2015 (available at /documents/spprgodebtratingfeb pr.pdf (identifying GDB s loan to PRHTA as an unrated subordinate HTA loan )). -15-

16 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 16 of 34 Private Partnerships Authority (the PPPA ), which has the authority to, among other things, evaluate and select government entities, functions, services, and facilities for partnerships; create and approve regulations regulating procedures establishing partnerships; negotiate and evaluate the terms and conditions of partnership contracts; and supervise partnerships. 27 L.P.R.A. 2605(b). 45. GDB President and PRHTA Board member Melba Acosta Febo is a member of the PPPA s Board of Directors. B. The 2011 Concession Agreement 46. On June 27, 2011, PRHTA entered into a forty-year concession agreement (the Concession Agreement ) with Metropistas. 47. The Concession Agreement granted a 40-year lease and assigned certain toll revenues generated by the use of PR-22 and PR-5 to Metropistas in exchange for, in relevant part, an up-front concession fee of approximately $1.1 billion (the Concession Fee ). These toll revenues were previously pledged to the repayment of the PRHTA bonds. In connection with the Concession Agreement, PRHTA represented that a portion of the Concession Fee (approximately $850 million) was used to defease the PRHTA bonds to which these toll revenues were pledged. If the $850 million was in fact so used, it would have the effect of releasing the liens on the applicable PRHTA bonds. 48. In addition to the assignment of certain toll revenues to Metropistas, the Concession Agreement also provided for a split of other toll revenues (those generated through a specific dynamic-pricing system) between PRHTA and Metropistas. -16-

17 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 17 of 34 C. The 2016 Concession Extension 49. On or about April 21, 2016, PRHTA and Metropistas entered into the Concession Extension, agreeing to extend the Concession Agreement for 10 more years, to As part of the Concession Extension, PRHTA agreed to reduce, from 50% to 25%, the amount it receives from the dynamic-pricing toll system installed on PR-22 (the Toll Share Reduction ). 50. The Concession Extension provides for PRHTA to receive an additional $100 million upfront payment (the Initial Extension Payment ), with the possibility of an additional $15 million (the Delayed Extension Payment and, together with the Initial Extension Payment, the Extension Payments ) upon the satisfaction of certain conditions The Concession Extension is a P3A transaction. Therefore, under Section 17 of Act 29, the Governor of Puerto Rico will decide, based on recommendations from GDB and OMB, how to allocate the proceeds of the transaction. See 27 L.P.R.A Under Section 17, the proceeds need not be used for the benefit of PRHTA. Instead, Section 17 expressly permits the Governor to direct the proceeds of a P3A transaction to a variety of other uses, including to pay debts of any kind, even operational debts, of the Commonwealth of Puerto Rico. Id. 52. On information and belief, the Extension Payments will be used to repay PRHTA s loan to GDB or for other Commonwealth purposes to the detriment of PRHTA s bondholders. The day after the Concession Extension was announced, PRHTA s Executive Director, Carmen Villar Prados, publicly acknowledged that the Extension Payments could be used to pay down PRHTA s debt to GDB, stating that the Authority had yet to determine how 7 By extending the overall term of the Concession Agreement to 50 years, PRHTA achieved the maximum term permissible under Act 29 without triggering a legislative approval requirement. See 27 L.P.R.A. 2609(e) (providing that any extension of P3A beyond 50 years must be approved by legislation ). 8 As part of the Concession Agreement, Metropistas also agreed to make investments in new tolling gantries and to share with PRHTA 30% of certain incremental revenues on such new gantries. -17-

18 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 18 of 34 to use the money. Puerto Rico Mulls Use of $115 Million Raised in Highway Deal as Defaults Loom, REORG RESEARCH, Apr. 22, In so stating, PRHTA s Executive Director misleadingly intimated that disposition of the Extension Payments was controlled by PRHTA, and not by the Governor. 53. After learning of the Concession Extension and becoming concerned about the potential diversion of its proceeds, on April 29, 2016, Plaintiff sent a letter to PRHTA s counsel, Nixon Peabody ( Nixon ) requesting confirmation by 12:00 p.m. on May 2, 2016, that PRHTA had maintained, and would continue to maintain, the proceeds of the Concession Extension for the benefit of PRHTA and its bondholders. In response, at 2:17 p.m. on May 2, 2016, Nixon stated that the proceeds of the Concession Extension were being held by EDB in the name of the Authority, but declined to offer any assurance those proceeds would be held for the benefit of PRHTA and its bondholders. V. PRHTA s History of Financial Mismanagement 54. PRHTA has a long history of financial mismanagement and alleged corruption that demonstrates the need to appoint a provisional receiver over PRHTA. A. PRHTA Treasurer Pleads Guilty to Federal Bribery Charges 55. In December 2014, Silvino Cepeda-Ortiz, the PRHTA Treasurer, was arrested in connection with bribery charges. PRHTA Treasurer Arrested by FBI, REORG RESEARCH, Dec. 3, The charges stemmed from kickback payments Cepeda-Ortiz solicited and received from contractors hired to perform work on projects funded by federal programs. Id. Cepeda- Ortiz pleaded guilty in October 2015 and, in February 2016, was sentenced to one year in prison. Un año en prisión al extesorero de la Autoridad de Carreteras, PRIMERA HORA, Feb. 22,

19 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 19 of 34 B. PRHTA s Auditors Express Concern Over Financial Mismanagement 56. PRHTA s independent auditors have expressed significant concerns about financial mismanagement within PRHTA. In addition to the inclusion of a going concern qualification, the PRHTA 2013/14 Audit identified significant recurring losses from operations, and business challenges exacerbated by the Commonwealth s economic recession and the fact that the Authority has not increased tolls to its customers at sufficient levels to offset the effects of its rising costs. See PRHTA 2013/14 Audit at 83 (emphasis added). Of the $177.8 million loss posted for FY 2014, $105.1 million was due to mass transit losses. Id. at PRHTA has also repeatedly failed to make payments due to the Puerto Rico Electric Power Authority. See id. at The 2013/14 Audit lists five control failures that amount to material weaknesses in PRHTA s operational procedures: i. PRHTA manually processes a significant volume of transactions related to its construction in progress operation, resulting in an inaccurate financial picture and impairment of management decision-making. ii. iii. iv. PRHTA s financial statement closing process was not performed in a timely manner, resulting in inefficient use of finance group resources and impairment of management decision-making. PRHTA exhibits control deficiencies in its internal controls over monitoring of tolls revenues, resulting in an inaccurate financial picture and impairment of management decision-making. Failure to accrue federal expenditures and compile the Schedule of Federal Expenditures Awards (SEFA) in a timely manner, potentially causing material omissions of certain grant expenditures and delays in the audit process. -19-

20 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 20 of 34 See id. at v. PRHTA s lack of control over the accounts payable reconciliation process led to material adjustments in its financial statements. C. PRHTA s Delay in Releasing Required Financial Disclosures 59. PRHTA has annual disclosure obligations under the PRHTA Resolutions and related agreements, including agreements concerning continuing disclosure (the PRHTA Continuing Disclosure Agreements ) and the authorizing resolutions of each series of PRHTA bonds (the PRHTA Authorizing Resolutions ). Pursuant to the Continuing Disclosure Agreements and the Authorizing Resolutions, PRHTA is required to disclose its audited financial statements within 305 days after the end of each fiscal year. See, e.g., Series AA/H PRHTA Continuing Disclosure Agreement 3(b); Series AA PRHTA Authorizing Resolution 14(a)(A); Series H PRHTA Authorizing Resolution 14(a)(A). Audited financial statements for the fiscal year ending June 30, 2014, due no later than May 1, 2015, were not released until December 23, 2015 over seven months past due. 60. Upon information and belief, PRHTA s delay in releasing its 2014 financial statements likely contributed to the significant delay in the release of the Commonwealth s 2014 Comprehensive Annual Financial Report ( 2014 CAFR ). The 2014 CAFR, due for release on May 31, 2015 and nearly eleven months overdue, has not yet been released. 61. The delay in the 2014 CAFR release has held up many refinancing efforts, including a proposed deal between PRHTA and the Puerto Rico Infrastructure Financing Authority ( PRIFA ), which was designed to provide PRHTA with liquidity and enable PRHTA to become self-sufficient. This proposed deal with PRIFA ultimately fell through. 9 The audit also found that PRHTA s lack of appropriate procedures to ensure a complete financial reporting package may cause delays in the single audit issuance process thus affecting low-risk auditee status and future grant awards. Id. at

21 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 21 of 34 D. PRHTA s Failure to Take Advantage of Federal Assistance 62. Not only has PRHTA failed to properly use its own resources, PRHTA has also failed to take advantage of federal assistance to which it is entitled. 63. PRHTA s 2014 audit reveals that in March 2014, the Federal Highway Transportation Authority approved $756.4 million in toll credits that may be applied toward the non-federal matching share of transit projects. These tolls credits will remain available until used. See PRHTA 2013/14 Audit at 82, 84 (emphasis added). 64. On information and belief, PRHTA has not taken advantage of the $750 million in federal toll credits. VI. PRHTA s Failure to Provide Contractually Required Information 65. PRHTA has violated its contractual and fiduciary obligations through a prolonged campaign of obfuscation and refusal to provide Plaintiff and other senior creditors with basic financial information. 66. This deliberate denial of access to information is both unlawful and plainly designed to further the Commonwealth and its affiliated entities efforts to strip the distressed PRHTA of its remaining assets in violation of its duties to PRHTA s bondholders. A. PRHTA is Obligated to Open Its Records to All Interested Persons 67. The PRHTA Resolutions provide inspection rights to all interested persons. Specifically, Section 607 of the PRHTA Resolutions states that [t]he Authority covenants that it will keep accurate records and accounts of all items of cost and of all expenditures relating to the Transportation Facilities and of the Revenues and the application of moneys held to the credit of the Revenue Fund. Such records and accounts shall be open to the inspection of all interested persons. -21-

22 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 22 of In addition, Section 1004 of the 1968 Resolution and Section 1103 of the 1998 Resolution provide that all documents received by the Fiscal Agent (i.e., the bank or trust company appointed by PRHTA in connection with the PRHTA Resolutions) shall be subject at all reasonable times to the inspection of the Authority, any bondholder and the agents and representatives thereof. 69. Pursuant to its insurance agreements with PRHTA, Plaintiff stands in the shoes of PRTHA bondholders as a third-party beneficiary of PRHTA s contractual obligations under the PHRTA Resolutions. See supra 20. Therefore, Plaintiff has and is entitled to exercise inspection rights under the PRHTA Resolutions on the same terms as PRHTA bondholders. 70. Furthermore, as an insurer of certain series of PRHTA bonds, Plaintiff has specific information rights with respect to PRHTA. For example, under the Ambac Insurance Agreements, the Authority is required to furnish to Ambac, upon request, copies of financial statements, copies of materials produced in accordance with PRHTA s continuing disclosure requirements, and such additional information [Ambac] may reasonably request. See, e.g., Series AA Ambac Insurance Agreement 4(4); Series H Ambac Insurance Agreement 4(4). B. PRHTA Has Repeatedly Failed to Provide Requested Information 71. PRHTA has failed to provide information about its books and records to Plaintiff and other monoline insurers, despite repeated requests, thus breaching the inspection rights covenant under the PRHTA Resolutions and its fiduciary duties to the PRHTA bondholders. 72. On October 7, 2014, Plaintiff, National Public Finance Guarantee Corporation ( National ), and Assured Guaranty Corporation and Assured Guaranty Municipal Corporation (together, Assured ) sent PRHTA a letter requesting financial information including, but not -22-

23 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 23 of 34 limited to, a five-year business plan, recent historical monthly financials and balance sheets, and details of all reserve accounts. 73. On October 9, 2014, National sent a letter to PRHTA s Fiscal Agent, Bank of New York ( BONY ). The letter reminded BONY of PRHTA s obligation pursuant to the bond obligations to conduct an audit of its books and accounts relating to Traffic Facilities and the Transportation Facilities financed by the bonds, and requested that BONY send such information to National s counsel. BONY responded on October 23, 2014 and instructed National to contact PRHTA directly for the information because, as Fiscal Agent, it was not in a position to comply with National s request. 74. On April 6, 2015, Plaintiff sent a letter to various representatives of PRHTA, including PRHTA Board Member and GDB President Melba Acosta Febo, requesting information about PRHTA s accounts and deposits. 75. Following a three-month period in which PRHTA produced only one of the requested items, Plaintiff sent another letter on July 9, 2015 to the same PRHTA representatives reiterating its previous information requests. 76. On March 2, 2016, Plaintiff wrote to the same PRHTA representatives in connection with its attempts to obtain financial information from BONY. The letter stated that, prior to March 2, Plaintiff had made multiple requests for similar information from the Fiscal Agent in s and phone calls to BONY s outside attorney, Reed Smith LLP ( Reed Smith ). In a March 11, 2016 letter, BONY responded that it would not release such information without PRHTA s consent and directed Plaintiff to seek the information directly from PRHTA. To date, PRHTA has failed to provide either the requisite consent or the information. -23-

24 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 24 of On March 15, 2016, Plaintiff, National, Assured, Syncora Capital Assurance, Inc. ( Syncora ), and Financial Guaranty Insurance Company ( FGIC, together with National, Assured, Ambac, and Syncora, the Insurers ) elected to exercise their rights to inspection pursuant to Section 607 of the PRHTA Resolutions. In a letter to PRHTA s counsel, Nixon Peabody ( Nixon ), the Insurers requested financial information about PRHTA for the time period from July 1, 2014 to the date of the letter, including but not limited to, monthly statements showing all activity in accounts holding Revenues pledged to the Bonds, direction regarding investment and transfer of said funds, and financial records indicating the source of all Revenues. The Insurers asked that the requested information be produced or made available for inspection within ten days. 78. On March 22, 2016, PRHTA s counsel, Nixon, responded to the Insurers March 15 letter. Nixon s letter was noncommittal and promised only that once it completed its review of the request and the Authority s obligations pursuant to the PRHTA Resolutions and the bond insurance agreements, they would make available to [the Insurers] any appropriate information. 79. On March 23, 2016, National, Assured, Syncora, and FGIC elected to exercise their rights pursuant to Section 1004 of the 1968 Resolution and Section 1103 of the 1998 Resolution to inspect certain documents in the possession of PRHTA s Fiscal Agent, BONY. The letter was addressed to BONY s counsel, Reed Smith, and requested that BONY produce information about the balances, deposits, and investments made with PRHTA s funds within ten days. 80. In response to Nixon s March 22 letter, the Insurers reiterated their request for information in a March 25, 2016 letter. Counsel for the Insurers stated that Nixon s March

25 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 25 of 34 letter had fail[ed] to identify what requested information (if any) [would] be made available, nor [did] it specify a date for production or inspection of such documents. In addition, counsel for the Insurers requested that, to the extent that PRHTA refused to provide certain documents, it identify which documents would not be provided and its reason for withholding them. 81. On March 29, Nixon responded to the Insurers March 25 letter. The response attached two documents that had been requested (contracts related to the monies received pursuant to the federal State Infrastructure Bank program), but continued to be vague and noncommittal. Specifically, the letter stated that PRHTA was still gathering additional information in order to be able to respond to [the Insurers ] requests, that said information would be promptly reviewed by counsel, and that said information would then be made available to the Insurers. Nixon did not specify a timeline for the gathering, review, and production of the requested documents. 82. On April 6, 2016, National, Assured, Syncora, and FGIC responded to Nixon s March 29 letter, stating that they had received only a small fraction of the requested documents, accompanied by vague assurances that PRHTA and its Fiscal Agent, BONY, are gathering additional information in order to respond to the Insurers additional requests. The letter specifically requested that PRHTA inform [National, Assured, Syncora, and FGIC] of any PRHTA accounts or monies held at GDB. Neither PRHTA nor its counsel responded to this letter. 83. By letter of April 29, 2016, as noted, Plaintiff requested that Nixon confirm that PRHTA had maintained, and would continue to maintain, the proceeds of the Concession Extension for the benefit of PRHTA and its bondholders. See supra 53. Plaintiff s April 29 letter further requested a narrow set of documents concerning the Concession Extension and -25-

26 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 26 of 34 PRHTA s financial condition by May 4, Nixon s May 2, 2016 response which declined to provide any assurance that the proceeds of the transaction would be used for the benefit of PRHTA and its bondholders stated that PRHTA was working with the Authority to collect th[e] materials requested by Plaintiff, and further stated that [a]s we have told you previously, once we have gathered and reviewed the information requested, we will provide the responsive information to you and your colleagues. In so stating, PRHTA referred to its promise to supply documents in its March 22, 2016 letter a promise that remains entirely unfulfilled. Based upon PRHTA s prior conduct, it is safe to assume that PRHTA has no intention of timely providing the documents Plaintiff requested on April 29, As of the filing of this Complaint, PRHTA has failed to produce the requested documents. 84. Because of PRHTA s failure to provide contractually required financial information and its failure to disclose information relating to the decision to enter into the Concession Extension, Plaintiff cannot verify whether PRHTA has complied with its contractual and fiduciary obligations to allocate funds in accordance with the PRHTA Resolutions and to otherwise act as a trustee protecting the interests of the bondholders. VII. PRHTA s Actions Have Harmed Plaintiff 85. Given PRHTA s repeated failure to provide requested information, and PRHTA s long and varied history of financial mismanagement, there is significant risk that the Extension Payments will be used for a purpose other than for the benefit of PRHTA and its bondholders. Indeed, in response to press speculation, the Authority has provided no assurances to the contrary, admitting openly that the Extension Payments could be used to pay down PRHTA s debt to GDB and stating only (and, as noted above, misleadingly) that the Authority had yet to -26-

27 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 27 of 34 determine how to use the money. Puerto Rico Mulls Use of $115 Million Raised in Highway Deal as Defaults Loom, REORG RESEARCH, Apr. 22, The use of the Extension Payments other than by PRHTA is not in PRHTA s best interests or those of PRHTA s bondholders. It sacrifices both PRHTA s operational needs and its payment obligations to senior bondholders. 87. PRHTA s independent auditors question PRHTA s ability to continue as a going concern. In its most recent audited financial statements, PRHTA admitted that it does not currently have sufficient funds available to fully repay its various obligations as they come due and that future defaults on the Authority s obligations may not be avoided. PRHTA 2013/2014 Audit at 22. And PRHTA has already defaulted on over $500 million in debt owed to GDB. By entering into the Concession Extension under such circumstances, when it knew that it would not control, and almost certainly would not retain, the proceeds from the transaction, and without any indication that the transaction was a corporate opportunity that would be lost if not immediately affected, PRHTA breached its fiduciary duties to Plaintiff and other bondholders. 88. PRHTA s indifference to the interests of its bondholders whose position has already significantly deteriorated as a result of the clawback of tax revenues dedicated to PRHTA and its repeated failure to disclose financial information, failure to manage its own resources in the face of operational funding deficits, and fiscal mismanagement threaten to irreparably harm Plaintiff. PRHTA must be placed into provisional receivership. VIII. A Provisional Receiver Is Needed 89. PRHTA, as noted, owes fiduciary and contractual duties to Plaintiff and other bondholders, including with respect to the use of revenues received by PRHTA. -27-

28 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 28 of PRHTA is facing extraordinary circumstances that require urgent action. PRHTA s inability to pay its current and future debts combined with the clawback of all PRHTA non-toll revenues, the assignment of significant PRHTA toll revenues for the next 45 years, and the Authority s documented pattern of gross mismanagement, have created an exigent need for the appointment of a provisional receiver. 91. Federal Rule of Civil Procedure 66 provides that the practice in administering an estate by a receiver or a similar court-appointed officer must accord with the historical practice in federal courts or with a local rule. 92. The 1998 Resolution specifically contemplates the appointment of a receiver. See, e.g., 1998 Resolution 902 (outlining order of payment priorities in the event of bankruptcy, insolvency or receivership ). 93. The appointment of a provisional receiver is justified and necessary because: (a) PRHTA has engaged in, and is currently engaging in, breaches of its fiduciary and contractual duties to bondholders. (b) PRHTA has engaged in, and is currently engaging in, irresponsible conduct regarding the allocation of PRHTA revenues. (c) There is an imminent danger that additional PRHTA revenues will be lost or squandered unless a provisional receiver is appointed. (d) Other legal remedies are inadequate because PRHTA s mismanagement has left PRHTA in severe financial distress. PRHTA requires a neutral and competent manager one that is not beholden to the competing priorities of GDB and the Commonwealth to oversee and allocate PRHTA s remaining revenues if PRHTA is to survive as a going concern. -28-

29 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 29 of 34 (e) Appointment of a provisional receiver will not harm PRHTA to the contrary, provisional receivership is PRHTA s only foreseeable path to financial recovery. And provisional receivership will not impede PRHTA s ability to perform its essential functions. Moreover, PRHTA s current board of directors is plagued by conflicts of interests due to competing loyalties to GDB and the Commonwealth government. See supra 18. Provisional receivership, in contrast, will provide PRHTA with responsible, non-conflicted management under the ongoing supervision of this Court that can ensure transparency, the maintenance of public services, and respect for bondholders rights. (f) If a provisional receiver is not appointed, Plaintiff will suffer irreparable injury through PRHTA s permanent loss of substantial revenues, which will further deepen PRHTA s financial distress. PRHTA s non-toll revenues are being clawed back to pay Commonwealth debts and expenses, and PRHTA s toll revenues are also being diverted away from PRHTA. The appointment of a provisional receiver will prevent harm not only to Plaintiff, but to all senior PRHTA bondholders, and will prevent PRHTA from giving a windfall to preferred, third-party junior creditors. 94. Accordingly, Plaintiff is entitled to the appointment of a provisional receiver to oversee the management and distribution of PRHTA revenues. FIRST CLAIM FOR RELIEF (Breach of Fiduciary Duty) 95. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 94 hereof, as if fully set forth herein. -29-

30 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 30 of Under the PRHTA Enabling Act, 9 L.P.R.A. 2013(a)(2), PRHTA owes trusteebased fiduciary duties to the PRHTA senior bondholders. Under Section 611 of the 1998 Resolution, PRHTA owes a duty to refrain from impairing the rights of its bondholders. 97. The relevant fiduciary duties owed to the PRHTA senior bondholders include: (a) The duty to not squander PRHTA assets, and to manage such assets free of conflict, fraud, or negligence; (b) The duty to allocate PRHTA revenues to senior bondholders before junior bondholders and/or unsecured junior creditors; (c) The duty to not make conflicted, preferential transfers to subordinated, related-party creditors while PRHTA is unable to fulfill its financial obligations to its senior creditors; and (d) The duty to apply PRHTA revenues to the PRHTA waterfall, in accordance with PRHTA s trustee obligations. 98. PRHTA is currently unable to fulfill all of its financial obligations to its creditors or fully fund its operations. 99. PRHTA entered into the Concession Extension knowing that it would not have the ability to retain the proceeds of that transaction or to direct their use Thus, PRHTA has breached and is currently breaching its fiduciary duties to PRHTA bondholders. Such breaches cause irreparable harm to Plaintiff. Appointment of a provisional receiver is necessary to halt PRHTA s ongoing breaches of fiduciary duty and to prevent PRHTA from continuing to breach its fiduciary duties in the future. -30-

31 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 31 of 34 SECOND CLAIM FOR RELIEF (Breach of Contract) 101. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 100 hereof, as if fully set forth herein The 1998 Resolution is a binding and enforceable contract The 1998 Resolution provides that no contract or contracts will be entered into or any action taken by which the rights of... the bondholders might be impaired or diminished Resolution Plaintiff has at all times fully performed its obligations under the 1998 PRHTA Resolution PRHTA is currently unable to fulfill all of its financial obligations to its creditors or fully fund its operations PRHTA entered into the Concession Extension knowing that it would not have the ability to retain the proceeds of that transaction or to direct their use By entering into the Concession Extension without securing in advance the ability to retain the proceeds of the transaction or direct their use for PRHTA s benefit, PRHTA has breached and is currently breaching its contractual duty to PRHTA bondholders under the 1998 Resolution not to enter into any contract that might impair or diminish the rights of such bondholders. Such breaches cause irreparable harm to Plaintiff. Appointment of a provisional receiver is necessary to halt PRHTA s ongoing breaches of its contractual duties and to prevent PRHTA from continuing to breach its contractual duties in the future. -31-

32 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 32 of 34 THIRD CLAIM FOR RELIEF (Specific Performance for Breach of Contract) 108. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 107 hereof, as if fully set forth herein The PRHTA Resolutions are binding and enforceable contracts The PRHTA Resolutions grant Plaintiff the contractual right to inspect PRHTA financial records relating to, inter alia, revenues, expenditures, and bond account balances The PRHTA Resolutions grant Plaintiff the contractual right to receive audited PRHTA financial reports concerning, for example, PRHTA s revenues, expenditures, and bond account balances Plaintiff has at all times fully performed its obligations under the PRHTA Resolutions Plaintiff has repeatedly requested PRHTA to allow Plaintiff to inspect PRHTA s financial records and provide Plaintiff with audited financial reports PRHTA has steadfastly refused access to PRHTA financial records, and has consistently failed to provide audited PRHTA financial reports. PRHTA s actions constitute breaches of the PRHTA Resolutions PRHTA s breaches of the PRHTA Resolutions are ongoing. Continued breaches are a virtual certainty. These breaches cause irreparable harm to Plaintiff Plaintiff has no adequate remedy at law that would be equivalent to providing the PRHTA financial information to which they are contractually entitled and that PRHTA wrongfully concealed Plaintiff is entitled to specific performance of the PRHTA Resolutions that require Defendant to give Plaintiff access to PRHTA s financial records, and provide Plaintiff -32-

33 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 33 of 34 with audited financial reports. PRHTA s long-running, inexplicable refusal to honor Plaintiff s contractual inspection rights reinforces the need to appoint a provisional receiver. RELIEF REQUESTED WHEREFORE, Plaintiff respectfully requests that the Court enter an order granting the following relief: (a) Granting Plaintiff expedited discovery concerning the Concession Extension and PRHTA s financial condition; (b) Ordering PRHTA to allow Plaintiff to inspect PRHTA s financial records on an ongoing basis; (c) (d) Appointing a provisional receiver over PRHTA; Permanently enjoining PRHTA from committing any further breaches of fiduciary or contractual duties owed to Plaintiff; (e) (f) Awarding Plaintiff costs and reasonable attorneys fees; and Granting Plaintiff any other relief this Court deems just and proper. Dated: San Juan, Puerto Rico May 10,

34 Case 3:16-cv FAB Document 1 Filed 05/10/16 Page 34 of 34 FERRAIUOLI LLC By: /s/ Roberto A. Cámara-Fuertes Roberto A. Cámara-Fuertes USDC P.R. No Ponce de León Avenue, 5th Floor San Juan, PR Telephone: (787) Facsimile: (787) rcamara@ferraiuoli.com MILBANK, TWEED, HADLEY & MCCLOY LLP By: /s/ Daniel M. Perry Dennis Dunne (pro hac vice forthcoming) Michael L. Hirschfeld (pro hac vice forthcoming) Daniel M. Perry (pro hac vice forthcoming) Atara Miller (pro hac vice forthcoming) Grant R. Mainland (pro hac vice forthcoming) 28 Liberty Street New York, NY Telephone: (212) Facsimile: (212) ddunne@milbank.com mhirschfeld@milbank.com dperry@milbank.com amiller@milbank.com gmainland@milbank.com Attorneys for Ambac Assurance Corporation -34-

35 Case 3:16-cv FAB Document 1-1 Filed 05/10/16 Page 1 of 2 CIVIL COVER SHEET (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.) I. (a) PLAINTIFFS DEFENDANTS PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY AMBAC ASSURANCE CORPORATION (b) Wisconsin (EXCEPT IN U.S. PLAINTIFF CASES) (c) (Firm Name, Address, and Telephone Number) Roberto Cámara-Fuertes, Esq. Ferraiuoli - PO Box , San Juan, Puerto Rico ; Tel rcamara@ferraiuoli.com; Puerto Rico (IN U.S. PLAINTIFF CASES ONLY) (If Known) II. BASIS OF JURISDICTION (Place an X in One Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an X in One Box for Plaintiff (For Diversity Cases Only) and One Box for Defendant) PTF DEF PTF DEF (U.S. Government Not a Party) or and (Indicate Citizenship of Parties in Item III) IV. NATURE OF SUIT (Place an X in One Box Only) CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES PERSONAL INJURY PERSONAL INJURY PROPERTY RIGHTS LABOR SOCIAL SECURITY PERSONAL PROPERTY REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS FEDERAL TAX SUITS Habeas Corpus: IMMIGRATION Other: V. ORIGIN (Place an X in One Box Only) VI. CAUSE OF ACTION VII. REQUESTED IN COMPLAINT: VIII. RELATED CASE(S) IF ANY FOR OFFICE USE ONLY (specify) (Do not cite jurisdictional statutes unless diversity) 28 U.S.C et seq Breach of fiduciary duty, breach of contract, specific performance. CLASS ACTION DEMAND $ (See instructions): 05/10/2016 s/roberto A. Cámara-Fuertes JURY DEMAND:

36 Case 3:16-cv FAB Document 1-1 Filed 05/10/16 Page 2 of 2 INSTRUCTIONS FOR ATTORNEYS COMPLETING CIVIL COVER SHEET FORM JS 44 I.(a) (b) (c) II. III. IV. Plaintiffs-Defendants. County of Residence. Attorneys. Jurisdiction.. ; NOTE: federal question actions take precedence over diversity cases. Residence (citizenship) of Principal Parties. Nature of Suit. V. Origin. VI. VII. Cause of Action. Do not cite jurisdictional statutes unless diversity. Requested in Complaint. VIII. Related Cases. Date and Attorney Signature.

37

38 Case 3:16-cv FAB Document 1-3 Filed 05/10/16 Page 1 of 2 DPR MODIFIED AO 440 (Rev. 06/12) Summons in a Civil Action UNITED STATES DISTRICT COURT for the District of Puerto Rico AMBAC ASSURANCE CORPORATION, Civil No. 16-cv-1893 ( ) Plaintiff, -against- PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY, Defendant. SUMMONS IN A CIVIL ACTION To: PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY Roberto Sánchez Vilella (formerly Minillas) Government Center South Bldg, 10 Floor De Diego Avenue Santurce, Puerto Rico A lawsuit has been filed against you. Within 21 days after service of this summons on you (not counting the day you received it) or 60 days if you are the United States or a United States agency, or an officer or employee of the United States described in Fed. R. Civ. P. 12 (a)(2) or (3) or 90 days in a Social Security Action you must serve upon the plaintiff an answer to the attached complaint or a motion under Rule 12 of the Federal Rules of Civil Procedure. The answer or motion must be served upon the plaintiff or plaintiff s attorney, whose name and address are: Roberto A. Cámara-Fuertes, Esq. Ferraiuoli, LLC PO Box , San Juan, PR Tel. (787) / rcamara@ferraiuoli.com If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint. You also must file your answer or motion with the court. FRANCES RIOS DE MORAN, ESQ. CLERK OF COURT Date: Signature of Clerk or Deputy Clerk

39 Case 3:16-cv FAB Document 1-3 Filed 05/10/16 Page 2 of 2 DPR MODIFIED AO 440 (Rev. 06/12) Summons in a Civil Action Civil Action No ( ) PROOF OF SERVICE (This section should not be filed with the court unless required by Fed. R. Civ. P. 4 (l)) This summons for (name of individual and title, if any) was received by me on (date). I personally served the summons on the individual at (place) on (date) ; or I left the summons at the individual s residence or usual place of abode with (name), a person of suitable age and discretion who resides there, on (date), and mailed a copy to the individual s last known address; or I served the summons on (name of individual) designated by law to accept service of process on behalf of (name of organization) I returned the summons unexecuted because on (date) ; or, who is ; or Other (specify):. My fees are $ for travel and $ for services, for a total of $. I declare under penalty of perjury that this information is true. Date: Server s signature Printed name and title Server s address Additional information regarding attempted service, etc:

40 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 1 of 9 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO AMBAC ASSURANCE CORPORATION, -against- Plaintiff, Civil No. 16-cv- PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY, Defendant. PLAINTIFF S URGENT MOTION FOR EXPEDITED DISCOVERY TO THE HONORABLE COURT: COMES NOW Plaintiff Ambac Assurance Corporation ( Ambac ), by and through its attorneys Ferraiuoli LLC and Milbank, Tweed, Hadley & McCloy LLP, and hereby respectfully moves this Court, pursuant to Rule 26(d) of the Federal Rules of Civil Procedure, for an order permitting Plaintiff to serve and requiring Defendant Puerto Rico Highways and Transportation Authority ( PRHTA ) to comply with expedited discovery requests substantially in the form attached hereto as Exhibit A. 1 In support of its motion, Plaintiff respectfully states as follows: 1. On this date, Plaintiff has filed a Complaint against PRHTA for the appointment of a receiver and other relief. Expedited discovery is necessary to shed light on PRHTA s continuing violation of its contractual and fiduciary obligations to Plaintiff. For more than a year, Plaintiff has repeatedly sought information that it is legally entitled to receive as a matter of right from PRHTA, but PRHTA has consistently refused to provide the requested information. The bond resolutions executed in 1968 (the 1968 Resolution ) and 1998 (the 1998 Resolution and, together with the 1968 Resolution, the PRHTA Resolutions ), under which PRHTA issued 1 Plaintiff reserves its right to seek additional discovery on a non-expedited basis.

41 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 2 of 9 the bonds insured by Plaintiff, provide inspection rights to all interested persons. Specifically, Section 607 of the PRHTA Resolutions states: The Authority covenants that it will keep accurate records and accounts of all items of cost and of all expenditures relating to the Transportation Facilities and of the Revenues and the application of moneys held to the credit of the Revenue Fund. Such records and accounts shall be open to the inspection of all interested persons PRHTA s refusal to provide basic information despite its statutory obligation to account to PRHTA s bondholders as the trustee of an express trust, see 9 L.P.R.A. 2013(a)(2), raises serious concerns as to what PRHTA is hiding from its bondholders. PRHTA s refusal to provide such information raises further concerns, in light of the concession extension entered into by PRHTA and Autopistas Metropolitanas de Puerto Rico, LLC, on or about April 21, 2016 (the Concession Extension ) a transaction that confers no benefit on the Authority or its bondholders and is just the latest instance of PRHTA s mismanagement and disregard for its fiduciary duties to Plaintiff. See Declaration in Support of Motion for Expedited Discovery ( Discovery Decl. ), Ex. 19 (REORG RESEARCH, Apr. 22, 2016). PRHTA s failure to make proper disclosures relating to the Concession Extension and allow inspection of its books and records underscores the need for immediate relief from this Court. 3. The Court may order expedited discovery if the request is reasonable... in light of all the circumstances. Laughlin v. Orthofix Int l, N.V., 293 F.R.D. 40, (D. Mass. 2013) (noting that a majority of district courts in the First Circuit has applied the reasonableness standard); Quintana v. Maza & Green Attorneys & Counselors at Law (In re Quintana), No Further, Section 1004 of the 1968 Resolution and Section 1103 of the 1998 Resolution provide that all documents received by the Fiscal Agent (i.e., the bank or trust company appointed by PRHTA in connection with the PRHTA Resolutions) shall be subject at all reasonable times to the inspection of the Authority, any bondholder and the agents and representatives thereof

42 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 3 of , 2012 WL , at *1 (Bankr. D.P.R. May 8, 2012). This inquiry considers various factors, including: (1) the purpose for the discovery ; (2) the ability of the discovery to preclude demonstrated irreparable harm ; (3) the plaintiff s likelihood of success on the merits ; (4) the burden of discovery on the defendant ; and (5) the degree of prematurity. Momenta Pharm., Inc. v. Teva Pharm. Indus. Ltd., 765 F. Supp. 2d 87, 89 (D. Mass. 2011). 4. First, the purpose of requesting expedited discovery is directly related to Plaintiff s request for the appointment of a provisional receiver. Documents concerning PRHTA s finances, mismanagement, and conflicts of interest will substantiate the need for a provisional receiver as a first step toward restoring PRHTA s fiduciary obligation to act in the best interests of its stakeholders. And, as noted, consistent with its legal rights, Plaintiff has requested a substantial portion of these documents for over a year, but PRHTA has essentially stiff-armed Plaintiff by promising to search but producing next to nothing. PRHTA has left Plaintiff and the PRHTA bondholders to guess at how PRHTA s public and fiscal affairs are being managed in a time of extreme economic stress. 5. Second, as the accompanying motion for a provisional receiver explains, the requested discovery is needed given the threat of imminent harm to PRHTA s bondholders and Plaintiff. After years of mismanagement and lack of internal controls, PRHTA s financial position has significantly deteriorated. See Discovery Decl., Ex. 17 (PRHTA s audited financial statements for the years ended June 30, 2013 and June 30, 2014), at 2. By failing to account to its creditors, PRHTA has had free rein to dissipate its assets, as illustrated by the Concession Extension, which transferred the use of some of PRHTA s most valuable highways to a private company, see Discovery Decl., Ex. 19, and by HTA s failure to take advantage of over $750 million in federal assistance. See Discovery Decl., Ex. 17, at 82, 84. Given these circumstances, - 3 -

43 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 4 of 9 immediate discovery related to PRHTA s finances, mismanagement, and conflicts of interest is warranted. 6. Third, Plaintiff is likely to succeed on the merits of its contract and fiduciary duty claims. With regard to the contract claim, the facts, bolstered by further discovery, will show that PRHTA breached its obligations under the PRHTA Resolutions to provide Plaintiff with timely information about its finances. Plaintiff is contractually entitled to inspect PRHTA s books and records. However, PRHTA has obstructed Plaintiff s efforts to shed light on its finances and has offered no plausible reason for its obstructive conduct. Cf. Wal-Mart Puerto Rico, Inc. v. Juan C. Zaragoza-Gomez, No. 3:15-CV-03018, 2016 WL , at *50-51 (D.P.R. Mar. 28, 2016) ( There is no reason for the current administration to keep suppressing the day when the true state of its finances is known.... The Commonwealth is in dire need of more transparency. ). Ambac and other monoline insurers have made numerous requests for documents. 3 Those efforts have been repeatedly rebuffed, with PRHTA s counsel taking the noncommittal position that it would complete its review of the request and the Authority s obligations pursuant to the PRHTA Resolutions and the bond insurance agreements and make available to [the Insurers] any appropriate information. 4 To date, PRHTA s counsel has only made available a small fraction of the requested documents. 5 Ambac and other monoline insurers have also addressed document requests to PRHTA s Fiscal Agent, Bank of New York 3 See, e.g., Discovery Decl., Ex. 1 (letter dated October 7, 2014); Discovery Decl., Ex. 4 (letter dated April 6, 2015); Discovery Decl., Ex. 5 (letter dated July 9, 2015); Discovery Decl., Ex. 6 (letter dated March 2, 2016); Discovery Decl., Ex. 8 (letter dated March 15, 2016); Discovery Decl., Ex. 11 (letter dated March 25, 2016); Discovery Decl., Ex. 13 (letter dated April 6, 2016); Discovery Decl., Ex. 14 (letter dated April 29, 2016). 4 Discovery Decl., Ex. 9 (letter dated March 22, 2016); accord Discovery Decl., Ex. 15 (letter dated May 2, 2016). 5 See Discovery Decl., Ex. 12 (letter dated March 29, 2016)

44 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 5 of 9 ( BONY ). 6 BONY has consistently taken the position that it cannot comply with the requests without PRHTA s consent. 7 To date, PRHTA has not provided the requisite consent and information. 7. With regard to Plaintiff s fiduciary duty claim, expedited discovery is expected to paint a fuller and clear picture of financial mismanagement, alleged corruption, and conflicts of interest already evidenced by facts in the public record. A vivid example is the arrest in December 2014 of former PRHTA Treasurer Silvino Cepeda-Ortiz in connection with bribery charges stemming from kickback payments he solicited and received from contractors hired to perform work on projects funded by federal programs. Discovery Decl., Ex. 16 (REORG RESEARCH, Dec. 3, 2014). Cepeda-Ortiz pleaded guilty in October 2015 and, in February 2016, was sentenced to one year in prison. Id. 8. PRHTA s independent auditors have expressed significant concerns about financial mismanagement and viability. In PRHTA s audited financial statements for the years ended June 30, 2013 and June 30, 2014, released on December 23, 2015 ( PRHTA 2013/14 Audit ), Ernst & Young, LLP ( E&Y ), expressed substantial doubt about [PRHTA s] ability to continue as a going concern. Discovery Decl., Ex. 17, at 2. E&Y stated that [t]he Authority has significant recurring losses from operations and does not have sufficient funds available to fully repay its various obligations as they come due. Id. In fact, as E&Y noted, PRHTA has repeatedly failed to make payments due to the Puerto Rico Electric Power Authority. Id. at 79. The PRHTA 2013/14 Audit also identified business challenges exacerbated by the Commonwealth s economic recession and the fact that the Authority has not increased tolls to its customers at sufficient levels to offset the effects of its rising costs. Id. at 83. E&Y identified 6 See, e.g., Discovery Decl., Ex. 2 (letter dated October 9, 2014); Discovery Decl., Ex. 6 (letter dated March 2, 2016); Discovery Decl., Ex. 10 (letter dated March 23, 2016). 7 See Discovery Decl., Ex. 3 (letter dated October 23, 2014); Discovery Decl., Ex. 7 (letter dated March 11, 2016)

45 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 6 of 9 five control failures that amounted to material weaknesses in PRHTA s operational procedures. Id. at Finally, the PRHTA 2013/14 Audit revealed that PRHTA had not only failed to properly use its own resources, but had also failed to take advantage of federal assistance to which it is entitled by law. Id. at 82, Further, as a result of either misconduct or sheer incompetence, PRHTA has failed to comply with annual disclosure obligations to its bondholders, including the disclosure of audited financial statements. Discovery Decl., Ex. 18 (REORG RESEARCH, Dec. 24, 2015). The resulting delay has had a negative cascading effect on the ability of the Commonwealth to release its own audited financial statements and on other public corporations refinancing efforts. Id. 10. Moreover, PRHTA s Board of Directors is plagued by conflicts of interests due to competing loyalties to the Government Development Bank for Puerto Rico ( GDB ) and the Commonwealth government. The Board of Directors is composed, among others, of the GDB President, the Puerto Rico Treasury Secretary, and the President of the Puerto Rico Planning Board. See Act , as amended, 21. It comes as no surprise, therefore, that the PRHTA Board of Directors approved the Concession Extension, a transaction that could potentially confer significant benefits to GDB and the Commonwealth while harming PRHTA and its bondholders. See Discovery Decl., Ex. 19. Indeed, Plaintiff has reason to believe that the proceeds received by PRHTA as part of the transaction will be transferred to GDB or to uses of the Commonwealth unrelated to PRHTA, in violation of PRHTA s fiduciary and contractual duties to Plaintiff. Plaintiff expects that discovery will confirm that the Concession Extension did not originate with PRHTA but was effected by PRHTA in breach of its fiduciary and - 6 -

46 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 7 of 9 contractual obligations to its senior bondholders and to Plaintiff at the behest or for the benefit of third parties. 11. Fourth, the burden on PRHTA is minimal. PRHTA is contractually obligated to provide the information requested by Plaintiff, and it has no excuse for withholding such information, much of which PRHTA was asked to produce for inspection over a year ago. Furthermore, the expedited discovery sought by Plaintiff is limited to documents (possibly followed by a small number of depositions) concerning PRHTA s financial condition and current account balances, the involvement of Commonwealth and GDB insiders in PRHTA s decisionmaking process, and the basis for PRHTA s decision to enter into the Concession Extension. 12. Fifth, expedited discovery is not premature, given that Plaintiff needs discovery in support of its request for a provisional receivership and that motions for expedited discovery are routinely coupled with applications for provisional relief to ensure that the Court grants the emergency relief on an appropriate evidentiary record. There is no time to spare. Upon information and belief, PRHTA can make its next bond payments (due July 1, 2016) only by dipping into a special reserve fund that the Authority would not need to utilize if it were financially sound. Whether PRHTA will be able to make subsequent bond payments is very much in question. Expedited discovery is therefore necessary to determine what measures must be put in place to avert a default. 13. Finally, should discovery disclose that PRHTA or others are about to take actions intended to moot this action or that would otherwise exacerbate Plaintiff s injuries, Plaintiff would be able to use information gained through expedited discovery to petition the Court to preserve the status quo pending a disposition on the merits

47 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 8 of 9 WHEREFORE, Plaintiff respectfully prays that this Honorable Court enter an order granting Plaintiff authorization to conduct immediate and expedited discovery for the purpose of obtaining the information requested in Exhibit A, and consequently grant Defendant until May 18, 2016 to file any written opposition to the foregoing motion, and to require a response to the information requested in Exhibit A by May RESPECTFULLY SUBMITTED. In San Juan, Puerto Rico, this 10th day of May,

48 Case 3:16-cv FAB Document 3 Filed 05/10/16 Page 9 of 9 FERRAIUOLI LLC By: /s/ Roberto A. Cámara-Fuertes Roberto A. Cámara-Fuertes USDC P.R. No Ponce de León Avenue, 5th Floor San Juan, PR Telephone: (787) Facsimile: (787) rcamara@ferraiuoli.com MILBANK, TWEED, HADLEY & MCCLOY LLP By: /s/ Daniel M. Perry Dennis Dunne (pro hac vice forthcoming) Michael L. Hirschfeld (pro hac vice forthcoming) Daniel M. Perry (pro hac vice forthcoming) Atara Miller (pro hac vice forthcoming) Grant R. Mainland (pro hac vice forthcoming) 28 Liberty Street New York, NY Telephone: (212) Facsimile: (212) ddunne@milbank.com mhirschfeld@milbank.com dperry@milbank.com amiller@milbank.com gmainland@milbank.com Attorneys for Ambac Assurance Corporation - 9 -

49 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 1 of 10 EXHIBIT A

50 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 2 of 10 UNITED STATES DISTRICT COURT DISTRICT OF PUERTO RICO AMBAC ASSURANCE CORPORATION, -against- Plaintiff, No. 16-cv- PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY, Defendant. PLAINTIFF S FIRST SET OF REQUESTS FOR PRODUCTION OF DOCUMENTS TO: PRHTA, DEFENDANT FROM: AMBAC, PLAINTIFF Through Ambac s counsel of record: Roberto A. Cámara-Fuertes FERRAIUOLI LLC USDC P.R. No Ponce de León Avenue, 5th Floor San Juan, PR Telephone: (787) Facsimile: (787) rcamara@ferraiuoli.com Dennis Dunne (pro hac vice forthcoming) Michael L. Hirschfeld (pro hac vice forthcoming) Daniel M. Perry (pro hac vice forthcoming) Atara Miller (pro hac vice forthcoming) Grant R. Mainland (pro hac vice forthcoming) MILBANK, TWEED, HADLEY & MCCLOY LLP 28 Liberty Street New York, NY Telephone: (212) Facsimile: (212) ddunne@milbank.com mhirschfeld@milbank.com dperry@milbank.com amiller@milbank.com gmainland@milbank.com

51 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 3 of 10 Pursuant to Rules 26 and 34 of the Federal Rules of Civil Procedure, Plaintiff Ambac Assurance Corporation ( Ambac ) requests that defendant, Puerto Rico Highway and Transportation Authority ( PRHTA ), produce for inspection and photocopying the documents requested below. PRHTA is further required to respond individually and in writing to each request for production of documents and to identify and produce documents which are responsive to each request. These responses and documents shall be produced by May 27, 2016 at the law offices of Ferraiuoli LLC, 221 Ponce de León Avenue, 5th Floor, San Juan, Puerto Rico, or on another date mutually agreed upon between counsel. In responding in writing to these requests, PRHTA is required by law to identify and produce all information and documents in its possession, custody or control, or that is known or available to it, including information and documents in the possession, custody or control of its agents, employees, officers, attorneys, accountants, auditors, engineers, experts, or any other person acting on its behalf. Each request for production is a continuing one. If after serving a reply to a request, PRHTA obtains or becomes aware of any further knowledge or documents pertaining to the subject matter of such request, an amended reply must be provided. I. DEFINITIONS AND INSTRUCTIONS A. Each request for production of documents seeks information available to PRHTA, its attorneys or agents, and all persons acting on its behalf. Accordingly, the terms PRHTA, defendant, you, and your refer without limitation to PRHTA, its attorneys and agents, and all persons acting on its behalf.

52 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 4 of 10 B. The term document is defined to be synonymous in meaning and equal in scope to the usage of this term in Fed. R. Civ. P. 34 (a). A draft or non-identical copy is a separate document within the meaning of this term. C. The term communication includes any written or oral transmission of facts, information or opinion, including any utterance, notation, or statement of any nature whatsoever, including, but not limited to, documents, correspondence and telephone conversations. D. The term identify means: (i) When referring to a person, identify means to give, to the extent known, the person s full name, present or last known address and telephone number, and, when referring to a natural person, the present or last known place of employment. Once a person has been identified in accordance with this subparagraph, only the name of that person need be listed in response to subsequent discovery requesting the identification of that person. (ii) When referring to a document, identify means to provide, to the extent known: (1) a true and exact copy of the document; (2) the type of documents; (3) the general subject matter; (4) the date of the document; and (5) the author(s), addressee(s), and recipient(s). E. The term concerning means referring to, relating to, describing, evidencing or constituting. F. The term person or party means any natural person, or any business, legal or governmental entity or association.

53 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 5 of 10 G. If PRHTA claims any form of privilege or immunity, whether based on statute or otherwise, as a ground for not responding in whole or in part to any request, in response to the request PRHTA shall set forth in complete detail each and every fact or ground upon which the privilege is based, including sufficient facts for the Court to make a full determination whether the claim or privilege is valid. If PRHTA claims any form or privilege as the ground for not producing a document, please state the following for each such response: (1) the name of each author of the communication concerned; (2) the name of each person to whom the communication was addressed; (3) the name of each person to whom the document indicates was to be copied; (4) the date of the communication; (5) a brief description of the nature and subject matter of the communication or the portion withheld; and (6) the nature of the claim of privilege or immunity. H. Metropistas means Autopistas Metropolitanas de Puerto Rico LLC. I. Concession Extension means the agreement to extend, for an additional ten years, the 2011 Toll Concession Agreement with Metropistas, the purpose of which was to finance, operate and maintain the PR-22 and PR-5 highways. J. The tem 1968 Resolution means Resolution 68-18, adopted by PRHTA on June 13, K. The tem 1998 Resolution means Resolution 98-06, adopted by PRHTA on February 26, L. Any capitalized terms used but not otherwise defined in these Requests shall have the meaning ascribed to them in Resolution and Resolution M. Unless otherwise stated, the time period for these Requests is July 1, 2013 through the present.

54 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 6 of 10 II. REQUESTS FOR PRODUCTION OF DOCUMENTS 1. All monthly statements showing or concerning activity in any and all accounts holding revenues or other funds which are pledged to the Bonds, including but not limited to the Revenue Fund, Sinking Fund, Senior Bond Sinking Fund, or Subordinated Bond Sinking Fund, and any subaccounts therein. 2. Account documentation sufficient to show the current balance in any and all accounts holding revenues or other funds which are pledged to the Bonds, including but not limited to the Revenue Fund, Sinking Fund, Senior Bond Sinking Fund, or Subordinated Bond Sinking Fund, and any subaccounts therein. 3. Audited financial statements for PRHTA for the fiscal years ending June 30, 2014 and Documents and communications, including financial records, concerning the source of all revenues or other funds received by PRHTA. 5. Documents and communications concerning an accounting of all toll revenues received in the fiscal year ending June 30, 2014 through the present, including a description of the road or other facilities for which the toll is charged. 6. Documents and communications concerning the indebtedness of HTA, including but not limited to bond debt, bank debt, notes, and debts owed to the Government Development Bank for Puerto Rico. 7. Documents and communications concerning any agreements between the Government Development Bank for Puerto Rico and PRHTA evidencing PRHTA s indebtedness to the Government Development Bank for Puerto Rico.

55 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 7 of Documents sufficient to show the amount of revenues pledged by PRHTA to secure PRHTA bonds that were received by PRHTA in the fiscal years ending June 30, 2014 and All documents and communications dated after January 1, 2015 concerning directions from PRHTA, the Government Development Bank of Puerto Rico, or any other person regarding the investment or transfer of any revenues or other funds received by PRHTA. 10. Documents and communications sufficient to identify all directions sent to or from any person concerning the investment or transfer of funds in the Sinking Fund under the 1968 Resolution and Senior Bond Sinking Fund and Subordinated Bond Sinking Fund under the 1998 Resolution. 11. Documents and communications concerning an accounting of all debt obligations, grouped by class of debt and associated CUSIP, outstanding as of May 1, Documents sufficient to show any instructions received by PRHTA from the Commonwealth pursuant to Executive Orders OE and OE Documents and communications sufficient to identify whether any PRHTA funds, including but not limited to the State Infrastructure Bank funds, are held by or deposited at the Government Development Bank of Puerto Rico. 14. For each PRHTA director who served on the PRHTA board of directors during any portion of the period in which the Concession Extension was initiated, negotiated, and documented, documents sufficient to show, for the five years preceding the execution of the Concession Extension, the individual director s (a) employment history, (b) affiliations with the Commonwealth government and/or other Commonwealth agencies or instrumentalities, and (c) any other appointed or elected positions held.

56 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 8 of Documents sufficient to identify all persons, including but not limited to PRHTA directors or officers, Commonwealth officers and elected officials, and Metropistas employees and representatives, involved in the negotiations concerning the Concession Extension. 16. All communications between or among any PRHTA directors or officers concerning (a) the initiation, negotiation, and documentation of the Concession Extension, or (b) the allocation or application of any proceeds of the Concession Extension. 17. All communications between or among PRHTA or PRHTA s counsel and any third parties concerning (a) the initiation, negotiation, and documentation of the Concession Extension, or (b) the allocation or application of any proceeds of the Concession Extension. 18. Documents and communications by and among persons, including but not limited to PRHTA directors or officers, Commonwealth officers and elected officials, and Metropistas employees and representatives, concerning any motivation or reasoning for entering into the Concession Extension. 19. Meeting minutes concerning (a) the initiation, negotiation, and documentation of the Concession Extension, or (b) the allocation or application of proceeds of the Concession Extension. 20. Account documentation sufficient to show the location and status of the proceeds of the Concession Extension, and any disposition thereof. 21. Documents sufficient to show PRHTA s current operating budget and any funding shortfall with respect to that budget. 22. A schedule of all future principal and interest payments on PRHTA bonds, showing the amounts due and dates of scheduled payment.

57 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 9 of All documents and communications concerning the sale or potential sale (including any research or identification of PRHTA assets that could potentially be sold) by PRHTA of any of PRHTA s assets from June 1, 2015 to the present. 24. All PRHTA board meeting minutes from May 2014 through the present. 25. Organizational charts that show PRHTA s management structure. 26. Documents and communications concerning efforts by PRHTA to take advantage of any federal assistance, including but not limited to PRHTA s efforts to take advantage of toll credits in March 2014 and PRHTA s decision not to take such toll credits. [Remainder of page intentionally left blank]

58 Case 3:16-cv FAB Document 3-1 Filed 05/10/16 Page 10 of 10 In San Juan, Puerto Rico, this 10th day of May, I HEREBY CERTIFY: that on this same date the foregoing First Set of Requests for Production of Documents was delivered to PRHTA s counsel via electronic mail at their electronic address of record. FERRAIUOLI LLC By: /s/ Roberto A. Cámara-Fuertes Roberto A. Cámara-Fuertes USDC P.R. No Ponce de León Avenue, 5th Floor San Juan, PR Telephone: (787) Facsimile: (787) rcamara@ferraiuoli.com MILBANK, TWEED, HADLEY & MCCLOY LLP By: /s/ Daniel M. Perry Dennis Dunne (pro hac vice forthcoming) Michael L. Hirschfeld (pro hac vice forthcoming) Daniel M. Perry (pro hac vice forthcoming) Atara Miller (pro hac vice forthcoming) Grant R. Mainland (pro hac vice forthcoming) 28 Liberty Street New York, NY Telephone: (212) Facsimile: (212) ddunne@milbank.com mhirschfeld@milbank.com dperry@milbank.com amiller@milbank.com gmainland@milbank.com Attorneys for Ambac Assurance Corporation

59 Case 3:16-cv FAB Document 3-2 Filed 05/10/16 Page 1 of 4 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO AMBAC ASSURANCE CORPORATION, -against- Plaintiff, No. 16-cv- PUERTO RICO HIGHWAYS AND TRANSPORTATION AUTHORITY, Defendant. DECLARATION OF ROBERTO A. CÁMARA- FUERTES IN SUPPORT OF PLAINTIFF S MOTION FOR EXPEDITED DISCOVERY ROBERTO A. CÁMARA-FUERTES, pursuant to 28 U.S.C. 1746, hereby declares as follows: 1. I am a member of the bar of this Court and am an attorney with the firm of Ferraiuoli LLC, attorneys for Plaintiff Ambac Assurance Corporation ( Ambac ). 2. I submit this declaration in support of Plaintiff s Motion for Expedited Discovery pursuant to Fed. R. Civ. P. 26(d). 3. Attached hereto as Exhibit 1 is a true and accurate copy of a letter dated October 7, 2014, from counsel for Plaintiff, counsel for National Public Finance Guarantee Corporation ( National ), and counsel for Assured Guaranty Ltd. ( Assured ) to counsel for Defendant Puerto Rico Highways and Transportation Authority ( PRHTA ), counsel for the Government Development Bank for Puerto Rico ( GDB ), and counsel for the Commonwealth of Puerto Rico (the Commonwealth ). 4. Attached hereto as Exhibit 2 is a true and accurate copy of a letter dated October 9, 2014, from National to The Bank of New York Mellon ( BONY ) as fiscal agent and successor fiscal agent for PRHTA.

60 Case 3:16-cv FAB Document 3-2 Filed 05/10/16 Page 2 of 4 5. Attached hereto as Exhibit 3 is a true and accurate copy of a letter dated October 23, 2014, from BONY to National. 6. Attached hereto as Exhibit 4 is a true and accurate copy of a letter dated April 6, 2015, from Ambac to the PRHTA Board of Directors, PRHTA officials, and the President of the GDB. 7. Attached hereto as Exhibit 5 is a true and accurate copy of a letter dated July 9, 2015, from Ambac to the PRHTA Board of Directors, PRHTA officials, and the President of the GDB. 8. Attached hereto as Exhibit 6 is a true and accurate copy of a letter dated March 2, 2016, from Ambac to the PRHTA Board of Directors, PRHTA officials, BONY, and the President of the GDB. 9. Attached hereto as Exhibit 7 is a true and accurate copy of a letter dated March 11, 2016, from BONY to Ambac, the PRHTA Board of Directors, PRHTA officials, and the GDB. 10. Attached hereto as Exhibit 8 is a true and accurate copy of a letter dated March 15, 2016, from counsel for Plaintiff, counsel for National, counsel for Assured, counsel for Financial Guarantee Insurance Company ( FGIC ), and counsel for Syncora Capital Assurance, Inc. ( Syncora ) to counsel for Defendant PRHTA and the Executive Director of PRHTA (internal exhibits omitted). 11. Attached hereto as Exhibit 9 is a true and accurate copy of a letter dated March 22, 2016, from counsel for Defendant PRHTA to counsel for Plaintiff, counsel for National, counsel for Assured, counsel for FGIC, and counsel for Syncora. 12. Attached hereto as Exhibit 10 is a true and accurate copy of a letter dated 2

61 Case 3:16-cv FAB Document 3-2 Filed 05/10/16 Page 3 of 4 March 23, 2016, from counsel for National, counsel for Assured, Counsel for FGIC, and Counsel for Syncora to counsel for BONY. 13. Attached hereto as Exhibit 11 is a true and accurate copy of a letter dated March 25, 2016, from counsel for Plaintiff, counsel for National, counsel for Assured, counsel for FGIC, and counsel for Syncora to counsel for Defendant PRHTA. 14. Attached hereto as Exhibit 12 is a true and accurate copy of a letter dated March 29, 2016, from counsel for Defendant PRHTA to counsel for Plaintiff, counsel for National, counsel for Assured, counsel for FGIC and counsel for Syncora. 15. Attached hereto as Exhibit 13 is a true and accurate copy of a letter dated April 6, 2016, from counsel for National, counsel for Assured, counsel for FGIC, and counsel for Syncora to counsel for Defendant PRHTA. 16. Attached hereto as Exhibit 14 is a true and accurate copy of a letter dated April 29, 2016, from counsel for Plaintiff to counsel for Defendant PRHTA. 17. Attached hereto as Exhibit 15 is a true and accurate copy of a letter dated May 2, 2016, from counsel for Defendant PRHTA to counsel for Plaintiff. 18. Attached hereto as Exhibit 16 is a true and accurate copy of a December 3, 2014 Reorg Research article titled PRHTA Treasurer Arrested by FBI. 19. Attached hereto as Exhibit 17 is a true and accurate copy of the Audited Financial Statements, Required Supplementary Information, and Supplemental Schedules for PRHTA for the years ended June 30, 2014 and Attached hereto as Exhibit 18 is a true and accurate copy of a December 23, 2015 Reorg Research article titled Audit Finds Substantial Doubt HTA Can Remain Going Concern. 3

62 Case 3:16-cv FAB Document 3-2 Filed 05/10/16 Page 4 of Attached hereto as Exhibit 19 is a true and accurate copy of an April 22, 2016 Reorg Research article titled Puerto Rico Mulls Use of $115 Million Raised in Highway Deal as Defaults Loom. I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge and belief. Dated: May 10, 2016 San Juan, Puerto Rico /s/ Roberto A. Cámara-Fuertes Roberto A. Cámara-Fuertes USDC P.R. No Ponce de León Avenue, 5th Floor San Juan, PR Telephone: (787) Facsimile: (787) rcamara@ferraiuoli.com 4

63 Case 3:16-cv FAB Document 3-3 Filed 05/10/16 Page 1 of 3 EXHIBIT 1

64 Case 3:16-cv FAB Document 3-3 Filed 05/10/16 Page 2 of 3 Virginia Wong Nixon Peabody LLP 437 Madison Avenue New York, New York Phone: Fax: vwong@nixonpeabody.com Counsel to the Puerto Rico Highways and Transportation Authority Martin J. Bienenstock Proskauer Rose LLP Eleven Times Square New York, New York Phone: Fax: mbienenstock@proskauer.com Counsel to the Commonwealth of Puerto Rico and the Government Development Bank for Puerto Rico José R. Coleman-Tió Government Development Bank for Puerto Rico P.O. Box San Juan, Puerto Rico, Phone: x Fax: jose.r.coleman@bgfpr.com Counsel to the Government Development Bank for Puerto Rico October 7, 2014 By Counsel: As you know, we represent National Public Finance Guarantee Corporation, successor in interest to MBIA Insurance Corporation, Assured Guaranty Municipal Corporation, and Ambac Assurance Corporation, insurers of payment of principal and interest of certain of over $2.7 billion of 1968 Bonds and 1998 Bonds issued by Puerto Rico s Highways and Transportation Authority (the HTA ). 1 National, Assured and Ambac have been seeking HTA-related diligence since August. At a meeting on October 2, 2014, the HTA, the Government Development Bank for Puerto Rico, and their respective advisors indicated that they would finally deliver said diligence this week, on October 8 th or 9 th. To avoid any confusion and to expedite delivery of the more pressing information, by this letter, we are highlighting the following items as the most important for you to include with whatever other material that you plan to send on October 8-9: 5 year business plan with cash flows and macroeconomic support, including projection of the petroleum taxes 1 The 1968 Bonds were issued pursuant to Resolution (the 1968 Bond Resolution ). The 1998 Bonds were issued pursuant to Resolution (the 1998 Bond Resolution ). The 1968 Bond Resolution and the 1998 Bond Resolution are referred to collectively herein as the Bond Resolutions. WEIL:\ \1\

65 Case 3:16-cv FAB Document 3-3 Filed 05/10/16 Page 3 of 3 Recent historical monthly financials and latest balance sheet, which details all assets and liabilities Include detail of all reserve accounts, working capital aging and real asset detail Detailed capital plan and most recent Annual Report of Traffic Engineers (road conditions report prepared by an engineer pursuant to Section 605 of the resolutions) Explanation of viability of future capital expenditures being lower than historic, including detail on daily maintenance and operating costs vs. capital expenditures Contract between HTA and the Secretary of Public Works An English translation and any English summaries of the proposed revised version of Bill 2039, a Spanish-language draft of which was first circulated this morning (including official versions) Delivery of the requested information by the date promised is an appropriate and important step in maintaining the cooperative nature of our clients relationship with the Commonwealth. We note that our clients are entitled to financial information pursuant to the Bond Insurance Agreements and Section 607 of the Bond Resolutions, including annual audit information. Sincerely, /s/ Marcia L. Goldstein Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York Phone: ] Fax: Marcia.Goldstein@weil.com Counsel to National Public Finance Guarantee Corp. /s/ Howard R. Hawkins, Jr. Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York Phone: Fax: Howard.Hawkins@cwt.com Counsel to Assured Guaranty Ltd /s/ David L. Dubrow Arent Fox LLP 1675 Broadway New York, New York Phone: Fax: David.Dubrow@arentfox.com Counsel to Ambac Assurance Corporation WEIL:\ \1\

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86 Case 3:16-cv FAB Document 3-10 Filed 05/10/16 Page 2 of 4 Ms. Virginia Wong (via and registered mail) Nixon Peabody LLP 437 Madison Avenue New York, New York vwong@nixonpeabody.com Counsel to the Puerto Rico Highways and Transportation Authority Ms. Carmen A. Villar-Prados (via registered mail) Executive Director Puerto Rico Highway and Transportation Authority Roberto Sanchez Vilella (Minillas) Government Center South Tower, 17th Floor De Diego Ave. Stop 22 San Juan, PR March 15, 2016 Dear Ms. Wong and Ms. Villar-Prados: As you know, we represent National Public Finance Guarantee Corporation (as successor in interest to MBIA Insurance Corporation, National ), Assured Guaranty Corporation, Assured Guaranty Municipal Corporation (together, Assured ), Ambac Assurance Corporation ( Ambac ), Syncora Capital Assurance, Inc. ( Syncora ), and Financial Guaranty Insurance Company ( FGIC ), as insurers ( Insurers ) of certain payments owed by the Puerto Rico Highways and Transportation Authority (the HTA ) as issuer of over $3 billion of bonds (the Bonds ) issued pursuant to Resolution (the 1968 Bond Resolution ) and Resolution (the 1998 Bond Resolution, and together with the 1968 Bond Resolution, the Resolutions ). This letter provides notice that the Insurers have elected to exercise their rights to inspection pursuant to section 607 of the Resolutions and the Insurers bond insurance agreements, which provide that (i) any interested party may inspect records and accounts of all items of cost and of all expenditures relating to the [Traffic and Transportation] Facilities 1 and of the Revenues and the application of the Revenues and/or the application of moneys held to the credit of the Revenue Fund 2 and (ii) the Insurers have the right to receive such additional information as they may reasonably request. 1 Capitalized terms not defined herein bear the meanings ascribed to them in the Resolutions. 2 The Insurers have made numerous requests for HTA-related records and accounts that HTA failed to fully respond to, including, but not limited to, information sought in a letter from National to HTA dated October 7, 2014, and, most recently, a request from National s financial advisors, PJT Partners Inc. on February 22, A copy of the October 7, 2014 letter is annexed hereto as Exhibit A. Ambac also requested information from HTA multiple times including by letters dated April 6, 2015, July 9, 2015, and March 2, A copy of the April 6 letter is annexed hereto as Exhibit B, a copy of the

87 Case 3:16-cv FAB Document 3-10 Filed 05/10/16 Page 3 of 4 To that end, the Insurers request that the following records and accounts for the time period from July 1, 2014 to the date hereof be produced electronically or made available for inspection within ten (10) business days: monthly statements showing all activity in all accounts holding Revenues pledged to the Bonds, including the Revenue Fund, Sinking Fund, Senior Bond Sinking Fund, Subordinated Bond Sinking Fund, and any subaccounts therein, in any case also identifying monies received by HTA on account of each component of Revenues and payment of HTA s debts; directions from HTA, the Government Development Bank of Puerto Rico, or any other person regarding the investment or transfer of any Revenues; financial records indicating the source of all Revenues received by HTA; copies of all directions from any person regarding the investment or transfer of funds in the Sinking Fund under the 1968 Resolution and Senior Bond Sinking Fund and Subordinated Bond Sinking Fund under the 1998 Resolution; an accounting of all debt obligations, grouped by class of debt and associated CUSIP, outstanding as of February 29, 2016; all notices of redemption or defeasance of the 2013A HTA Bond Anticipatory Notes; copies of any report or audits received by HTA from the Fiscal Agent or Government Development Bank of Puerto Rico regarding funds held by such persons; the agreement with the Secretary of Transportation and Public Works pursuant to which the Secretary of Transportation and Public Works has agreed to pay the costs from general funds of the Commonwealth of Puerto Rico which are made available to him for that purposes, of maintaining, repairing and operating certain traffic and transportation facilities financed by [HTA] referenced in the preambles of the Resolutions; the Cooperative Agreement, between the Federal Highway Administration, the Federal Transit Administration and the Puerto Rico Department of Transportation and Public Works, dated December 1997; the Puerto Rico Infrastructure Bank Agreement between the Puerto Rico Department of Transportation and Public Works, HTA and the Government Development Bank for Puerto Rico, dated June 12, 1998; and July 9 letter is annexed hereto as Exhibit C, and a copy of the March 2 letter is annexed hereto as Exhibit D. Additionally, Assured requested certain information from HTA in an dated December 3, 2015, a copy of which is annexed hereto as Exhibit E. 2

88 Case 3:16-cv FAB Document 3-10 Filed 05/10/16 Page 4 of 4 annual reports filed by the Puerto Rico State Infrastructure Bank with the Secretary of Transportation pursuant to 23 U.S.C.A. 610(g)(7). If the documents cannot be made available electronically, please provide dates for the Insurers or their representatives to inspect such records and information in person. The Insurers reserve all rights to request additional information, including, without limitation, records, accounts, and information relating to earlier time periods than the time period covered by this request. If you have any questions, please do not hesitate to contact the undersigned. Sincerely, /s/ Salvatore A. Romanello Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York Phone: Fax: salvatore.romanello@weil.com Counsel to National Public Finance Guarantee Corp. /s/ Atara Miller Milbank, Tweed, Hadley & McCloy LLP 28 Liberty Street New York, New York Phone: Fax: amiller@milbank.com Counsel to Ambac Assurance Corporation /s/ Ivan Loncar Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York Phone: Fax: ivan.loncar@cwt.com Counsel to Assured Guaranty Corp. and Assured Guaranty Municipal Corp. /s/ Stanford G. Ladner Butler Snow LLP 1700 Broadway, 41st Floor New York, New York Phone: Fax: stan.ladner@butlersnow.com Counsel to Financial Guaranty Insurance Company /s/ My Chi To Debevoise & Plimpton LLP 919 Third Avenue New York, New York Phone: Fax: mcto@debevoise.com Counsel to Syncora Capital Assurance, Inc. 3

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99 Case 3:16-cv FAB Document 3-13 Filed 05/10/16 Page 2 of 4 Ms. Virginia Wong (via and registered mail) Nixon Peabody LLP 437 Madison Avenue New York, New York vwong@nixonpeabody.com Counsel to the Puerto Rico Highways and Transportation Authority March 25, 2016 Dear Ms. Wong: On March 15, 2016, the Insurers 1 requested that by March 29, 2016, the Puerto Rico Highway and Transportation Authority ( HTA ) make certain records and accounts available, as required under section 607 of Resolution and Resolution and the Insurers bond insurance agreements. Your March 22, 2016 letter fails to identify what requested information (if any) will be made available, nor does it specify a date for production or inspection of such documents. The Insurers are expressly entitled to such information, and request that you identify by March 29, 2016 which documents HTA will provide to the Insurers. Further, to the extent that HTA refuses to provide certain documents, please identify which documents will not be provided and the reason for withholding such documents. The Insurers further request that by March 29, 2016, HTA provide the Insurers with all reasonably available and accessible documents requested in the March 15 letter, and that the remainder of the requested information be provided by April 5, If you have any questions, please do not hesitate to contact the undersigned. 1 Insurers refers to National Public Finance Guarantee Corporation (as successor in interest to MBIA Insurance Corporation, National ), Assured Guaranty Corp., Assured Guaranty Municipal Corp. (together, Assured ), Ambac Assurance Corporation ( Ambac ), Syncora Capital Assurance, Inc. ( Syncora ), and Financial Guaranty Insurance Company ( FGIC ).

100 Case 3:16-cv FAB Document 3-13 Filed 05/10/16 Page 3 of 4 Sincerely, /s/ Salvatore A. Romanello Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York Phone: Fax: salvatore.romanello@weil.com Counsel to National Public Finance Guarantee Corp. /s/ Ivan Loncar Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York Phone: Fax: ivan.loncar@cwt.com Counsel to Assured Guaranty Corp. and Assured Guaranty Municipal Corp. /s/ Atara Miller Milbank, Tweed, Hadley & McCloy LLP 28 Liberty Street New York, New York Phone: Fax: amiller@milbank.com Counsel to Ambac Assurance Corporation /s/ Stanford G. Ladner Butler Snow LLP 1700 Broadway, 41st Floor New York, New York Phone: Fax: stan.ladner@butlersnow.com Counsel to Financial Guaranty Insurance Company /s/ My Chi To Debevoise & Plimpton LLP 919 Third Avenue New York, New York Phone: Fax: mcto@debevoise.com Counsel to Syncora Capital Assurance, Inc. 2

101 Case 3:16-cv FAB Document 3-13 Filed 05/10/16 Page 4 of 4 cc: Ms. Carmen A. Villar-Prados (via registered mail) Executive Director Puerto Rico Highway and Transportation Authority Roberto Sanchez Vilella (Minillas) Government Center South Tower, 17th Floor De Diego Ave. Stop 22 San Juan, PR

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106 Case 3:16-cv FAB Document 3-15 Filed 05/10/16 Page 2 of 3 Ms. Virginia Wong (via and registered mail) Nixon Peabody LLP 437 Madison Avenue New York, New York vwong@nixonpeabody.com Counsel to the Puerto Rico Highways and Transportation Authority April 6, 2016 Dear Ms. Wong: The Insurers 1 have made numerous requests for information from the Puerto Rico Highway and Transportation Authority ( HTA ) pursuant to section 607 of Resolution and Resolution and the Insurers bond insurance agreements. To date, the Insurers have received only a small fraction of the requested documents, accompanied by vague assurances that HTA and its fiscal agent, Bank of New York Mellon, are gathering additional information in order to respond to the Insurers additional requests. HTA refuses to specify a timeline for its review, nor has it given Insurers any information about when the requested documents (if any) will be provided for the Insurers inspection. As you are aware, a group of investors with a substantial holding of bonds issued by the Government Development Bank of Puerto Rico ( GDB ) filed a complaint against GDB on April 4, The complaint is based on the issues raised by GDB s precarious financial condition and a concern about its future. Given this latest development, the Insurers again request that HTA inform them of any HTA accounts or monies held at GDB. 2 The Insurers are expressly entitled to the requested information, and request that such information be provided immediately. As noted by the Honorable José Antonio Fusté, the continued failure to provide this type of information is detrimental not only to the Commonwealth s creditors, but to the Commonwealth, itself. See Wal-Mart Puerto Rico, Inc. v. Zaragoza-Gomez, No. 3:15-cv-03018, slip op. at 107 (D.P.R. Mar. 28, 2016). The Insurers expressly reserve all rights, including under the Bond Resolutions and their respective insurance agreements. 1 Insurers refers to National Public Finance Guarantee Corporation (as successor in interest to MBIA Insurance Corporation, National ), Assured Guaranty Corp., Assured Guaranty Municipal Corp. (together, Assured ), Syncora Capital Assurance, Inc. ( Syncora ), and Financial Guaranty Insurance Company ( FGIC ). 2 The Insurers March 15 letter requested copies of any reports or audits received by HTA from the Fiscal Agent or Government Development Bank of Puerto Rico regarding funds held by such persons.

107 Case 3:16-cv FAB Document 3-15 Filed 05/10/16 Page 3 of 3 Sincerely, /s/ Salvatore A. Romanello Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York Phone: Fax: salvatore.romanello@weil.com Counsel to National Public Finance Guarantee Corp. /s/ Ivan Loncar Cadwalader, Wickersham & Taft LLP One World Financial Center New York, New York Phone: Fax: ivan.loncar@cwt.com Counsel to Assured Guaranty Corp. and Assured Guaranty Municipal Corp. /s/ My Chi To Debevoise & Plimpton LLP 919 Third Avenue New York, New York Phone: Fax: mcto@debevoise.com Counsel to Syncora Capital Assurance, Inc. /s/ Stanford G. Ladner Butler Snow LLP 1700 Broadway, 41st Floor New York, New York Phone: Fax: stan.ladner@butlersnow.com Counsel to Financial Guaranty Insurance Company cc: Ms. Carmen A. Villar-Prados (via registered mail) Executive Director Puerto Rico Highway and Transportation Authority Roberto Sanchez Vilella (Minillas) Government Center South Tower, 17th Floor De Diego Ave. Stop 22 San Juan, PR

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