RECEIVABLES AND PAYABLES

Governmental and Business — Type Activities —Receivables in the governmental funds include approximately $1.3 billion of accrued income, excise and sales and use taxes. Intergovernmental receivables include approximately $312 million from the federal government and $32.2 million from CRIM. In addition, the enterprise funds include $72.9 million of unemployment, disability, and drivers’ insurance premium receivable. Payables in the governmental funds include approximately

$835.2 million of trade accounts due to suppliers for purchase of merchandise and services rendered and $851.8 million of tax refunds payable.

In accordance with GASB Technical Bulletin No. 2004-1, Tobacco Settlement Recognition and

Financial Reporting Entity Issue, as amended(the “TB”), a receivable of $40.6 million was recorded as

other receivable in the government-wide financial statements for estimated shipments from January 1 to June 30, 2012, which will be applied to debt service upon collection. Additionally, the TB indicated that the trust designated as the TSA (the Children’s Trust in the case of the Commonwealth) should

recognize a liability for the bonds payable and an expense (and liability if unpaid) in the same period in its stand-alone financial statements. The expense (and liability if unpaid) recognizes the contractual obligation to remit the proceeds of the bond sold to the settling government (the “Commonwealth”). Since the Children’s Trust is reported as a blended component unit, the TB indicates these remittances should be reported as transfers into the fund receiving the proceeds and transfers out in the fund that accounts for the activities of the TSA. Since the Children’s Trust has no contractual obligation, under its enabling legislation or elsewhere, to remit all bond proceeds or assets related to the TSA to the settling government (the “Commonwealth”), the Children’s Trust has not recognized an expense and liability for unpaid proceeds from the bonds since it records the expense as amounts are disbursed as grants to its settling government (including its instrumentalities) or third parties.

Component Units — GDB—Loans to the Commonwealth, its agencies, and instrumentalities amounted to approximately $5.7 billion or 36% of GDB’s government wide total assets as of June 30, 2012. These loans are expected to be collected from appropriations from, proceeds from bond issuances of, or revenues generated by, the Commonwealth, and/or its agencies and instrumentalities. The

Commonwealth’s recurring expenditures have exceeded its recurring revenues during the past thirteen years and its credit ratings have been lowered. In addition, many of the Commonwealth’s agencies and instrumentalities have had losses from operations during the past years. The collectability of these loans may be affected by budgetary constraints, the fiscal situation, and the credit rating of the Commonwealth of Puerto Rico, its agencies and instrumentalities, and their ability to generate sufficient funds from taxes, charges and/or bond issuances. Continuance of and/or significant negative changes in these factors may affect the ability of the Commonwealth and its agencies and instrumentalities to repay their

outstanding loan balances with GDB and accordingly, may have an adverse impact on GDB’s financial condition, liquidity, funding sources, and results of operations.

GDB’s management believes that no losses will be incurred by GDB with respect to principal and interest on most of its loans to the public sector (including municipalities) and, as a result, no allowance for loan losses is generally established for them. For public sector loans, excluding municipalities, GDB’s management bases its position in that in the past, the Director of the Commonwealth’s Office of Management and Budget (OMB) has included in the budget of the Commonwealth appropriations to assist the Commonwealth and certain of its agencies and instrumentalities requiring financial support in repaying their loans with GDB. The Legislature of the Commonwealth (the “Legislature”) has approved these appropriations, and such practice is anticipated to continue in the future. In addition,

Commonwealth have never defaulted on their respective bonds. GDB has, in the past, collected the outstanding principal and interest at the contractual rate on loans repaid from Commonwealth’s

appropriations, or bond or note proceeds. Accordingly, no allowance has been established in the case of public sector loans for any shortfall between the present value of the expected future cash flows and the recorded investments in the loans.

Although management of GDB believes that no losses of principal and interest will be incurred by GDB with respect to most loans outstanding to the public sector at June 30, 2012, there can be no assurance that the Director of the OMB will include amounts for loan repayments in the Commonwealths’ budget, and that the Legislature will appropriate sufficient funds in the future to cover all amounts due to GDB by the Commonwealth or public sector entities requiring the Commonwealth’s support, or that the proceeds from any future bond issuances by COFINA or certain public entities which have financed their capital improvement programs with GDB, will be sufficient to cover the outstanding amount due to GDB at June 30, 2012. In addition, the participation of certain public entities in the bond market has been delayed waiting for the credit rating of such entities to improve or for more favorable market conditions. Because of the relationship among GDB, the public sector entities, the Director of the OMB, and the Legislature, the timing and amount of any financial assistance and bond proceeds to be used to repay certain public sector loans cannot be reasonably estimated by GDB.

At June 30, 2012, loans to public corporations and agencies of the Commonwealth amounting to $5.7 billion are repayable from the following sources (in thousands):

Repayment Source Amount

Proceeds from future bond issuances of public corporations $1,538,175 Operating revenues of public entities other than the Commonwealth 1,043,636 Legislative appropriations — previously from issuance of Commonwealth’s

general obligation bonds 1,123,959

Legislative appropriations — previously from COFINA 758,397

Legislative appropriations — other 1,157,463

Other — including funds from federal grants 78,174

Total $5,699,804

Since one of GDB’s principal functions is to provide financing to the Commonwealth and its instrumentalities, GDB’s loan portfolio includes loans to various departments and agencies of the Commonwealth, to various public corporations, and to municipalities, which represent a significant portion of the GDB’s government-wide assets. Loans to the Commonwealth and its departments and agencies typically include working capital lines of credit payable from short-term tax and revenue anticipation notes issued by the Commonwealth, interim financing of capital improvements payable from Commonwealth’s general obligation bonds or revenue bonds issued by the corresponding agency and, in recent years, loans to finance the Commonwealth’s budget deficit payable from COFINA, uncollected taxes and annual appropriations made by the Legislature of Puerto Rico. Loans to the public sector, excluding municipalities, amounted to approximately $5.7 billion or 36% of GDB’s government- wide total assets at June 30, 2012.

At June 30, 2012, approximately $3 billion of the public sector loans are payable from legislative appropriations from, or future tax revenues of, the Commonwealth. Accordingly, the payment of these loans may be affected by budgetary constraints, the fiscal situation and the credit rating of the

Commonwealth. Significant negative changes in these factors may have an adverse impact on GDB’s financial condition. Since 2000, the Commonwealth’s recurring expenditures have exceeded its

recurring revenues. These shortfalls were partially covered with loans from GDB and other nonrecurring revenues. From fiscal year 2003 to 2008, GDB granted loans to the Commonwealth aggregating to $1,964 million to cover part of the Commonwealth’s deficit. As of June 30, 2012, the outstanding principal amount of these loans was $223 million.

During fiscal year 2012, GDB received $65.1 million and $91.5 million of appropriations to repay principal of and interest on public sector loans whose repayment source was originally from COFINA and from future issuances of Commonwealth’s general obligations bonds, respectively. The

Commonwealth’s general fund budget for fiscal year 2013 includes $65.1 million and $97.9 million of appropriations to repay principal of and interest on public sector loans whose repayment sources was originally from COFINA and from future issuances of Commonwealth’s general obligations bonds, respectively. These appropriations are based on payment schedules proposed by GDB, which are based on a period of amortization of 30 years each, at contractual interest rates. GDB will annually submit to the OMB, to be included in the Commonwealth’s budget for legislative approval in each subsequent fiscal year, an amount established in the payment schedules with the terms stated above. GDB expects that future appropriations will be approved by the Legislature of the Commonwealth to comply with such schedules. However, there can be no assurance that the Director of OMB will include an amount for loan repayments in the Commonwealth’s budget, and that the Legislature will appropriate sufficient funds in the future to cover all amounts due to GDB on these loans.

In addition, at June 30, 2012, approximately $2.7 billion of public sector loans are payable from proceeds from future bond issuances and operating income of public corporations of the

Commonwealth. GDB lends funds to such public corporations for capital improvements and operating needs. The loans for capital improvements generally are construction loans and are repaid from the proceeds of future bond issuances of the respective public corporations. Such loans may, however, also be repaid from the revenues of such public corporations, from loans provided by sources other than GDB, from federal grants, and from the sale of assets of such public corporations. The amount of outstanding loans from GDB to the public corporations fluctuates annually, depending upon the capital program needs of the public corporations, the timing and level of their capital expenditures, and their ability to gain access to the long-term capital markets. The participation of certain of these public entities in the bond market has been delayed waiting for the credit rating of such entities to improve or for more favorable market conditions.

As of June 30, 2012, GDB has extended various credit facilities to Puerto Rico Highways and

Transportation Authority (PRHTA) for, among other, capital improvement programs, working capital, debt service and collateral posting requirements. The outstanding balance of such facilities amounts to $1.9 billion, including accrued interest of $30.5 million, which represent 12% and 76%, of GDB’s total government-wide assets and net assets, respectively, at June 30, 2012. GDB, in its ordinary course of business, provides interim lines of credit to public corporations like PRHTA. These lines of credit have historically been repaid from bond issuances of each public corporation, once they regain or have access to the capital markets. No public corporation has ever defaulted on its obligations with GDB.

PRHTA has reported net operating losses during each of the three fiscal years in the period ended June 30, 2011, and, as a result, GDB has been partially financing its operations through credit facilities. In fiscal year 2010, PRHTA entered into a fiscal oversight agreement with GDB, whereby GDB, among other things, imposes conditions on the extensions of credit to PRHTA and continually monitors its finances. PRHTA expects to repay the credit facilities due to GDB with proceeds from the issuance of bonds within the next two fiscal years. On December 13, 2012, Moody’s Investors Service (“Moody’s”) downgraded PRHTA’s transportation revenue bonds from Baa1 to Baa3, PRHTA’s highway revenue

the bond capital market, including, among other, a new trust indenture, revenue increasing measures, and expense reduction measures. If such alternatives are not materialized, PRHTA could default on its credit facilities with GDB, which may have a material adverse effect on the financial condition, operating results and liquidity of GDB. GDB’ management, however, believes that in case such alternatives are not materialized, the Commonwealth would provide financial support to PRHTA in order to repay its outstanding borrowings with GDB. On June 25, 2013 the Commonwealth enacted Act No. 31, which amended several articles of the internal revenue code designed to raise PRHTA’s revenue base through the increase of applicable excise tax rates to be applied on imports of crude oil, unfinished oil and derivative products. This measure is expected to provide funds to PRHTA to repay the GDB credit facilities. For more details see Note 25 (d).

Pension Trust Funds —Loans receivable from plan members are guaranteed by the contributions of plan members and by other sources, including mortgage deeds and any unrestricted amount remaining in the escrow funds. In addition, collections on loans receivable are received through payroll withholdings. For the year ended June 30, 2012, the maximum amount of loans to plan members for mortgage loans was $100,000, and $5,000 for personal and cultural trip loans.

The allowance for loan losses is considered a general allowance for all categories of loans and interest receivable, except mortgage loans, and also a specific allowance for the special collection project loans balances.

As of June 30, 2012, the composition of loans and interest receivable from plan members is summarized as follows (in thousands):

Loans receivable:

Personal $ 961,654

Mortgage 288,368

Cultural trips 73,985

Total loans to plan members 1,324,007

Accrued interest receivable 40,183

Total loans and interest receivable from plan members 1,364,190 Less allowance for adjustments and losses in realization (4,850) Total loans and interest receivable from plan members — net $1,359,340

As of June 30, 2012, accounts receivable from employers, included within accounts receivables in the accompanying statement of fiduciary net assets, consisted of the following (in thousands):

Early retirement programs $ 7,932

Special laws 45,746

Employer and employee contributions 47,795

Interest on late payments 11,413

Total accounts receivable from employers 112,886

Less allowance for doubtful accounts receivable (911)

Accounts receivable from employers — net $111,975

According to Act No. 447, each employer must pay, on a monthly basis, the amounts corresponding to contributions and loan repayments, on or before the fifteenth day of the following month. After that date, interests are charged as established by the Pension Trust Fund.

The accounts receivable from employers related to special laws amounts to $45.8 million as of June 30, 2012. The Pension Trust Fund has entered into installment payment agreements with approximately 84% of these employers, while the remaining 16% of employers have not entered into installment payments with the Pension Trust Fund.

As of June 30, 2012, accounts receivable from employers include amounts due from Puerto Rico Medical Service Administration (“ASEM” by its Spanish acronym) of approximately $16.7 million, as follow (in thousands):

Employer and employee contributions $11,150

Interest 5,507

Total accounts receivable from ASEM $16,657

During fiscal year 2011, the Commonwealth’s Legislature approved Act No. 2961 assigning funds to ASEM to settle its account receivable with ERS as of June 30, 2010. ASEM and ERS have established a 3 year payment plan for the remaining outstanding balance of employer and employee contributions owed. On January 5, 2011, ERS received an initial payment of $54 million. In addition, in August 2011, ERS received an interest payment of $14 million.