The hearing involves more than $17 billion in debt backed by sales-tax bonds that the government issued, representing nearly a third of Puerto Rico's overall bonded debt. The restructuring plan was recently approved after more than 8,000 bondholders voted on it, according to a federal control board that oversees the island's finances and supports the plan, calling it key to Puerto Rico's recovery.
As the session opened, Judge Laura Taylor-Swain said she has received hundreds of letters, emails and messages from people, including those "who invested entire retirement savings and plead they need to be paid in full to survive."
She said everyone's concerns are significant and meaningful, but there are contracts and legal agreements that have to be addressed. "There is no decision that can perfectly reconcile all concerns," she said.
If approved, the deal will mean 40 years of payments for Puerto Rico's government. Senior bondholders, who hold nearly $8 billion, will be first to collect, receiving 93 percent of the value of the original bonds. Junior bondholders, many of whom are individual Puerto Rican investors and overall hold nearly $10 billion, will collect last and recover only 54 percent.
Economist Martin Guzman, a research associate at Columbia University, warned this week that if the plan is approved, Puerto Rico would pay $32 billion in the next 40 years. He said it is hard for people to understand the effect that such a deal will have on their lives before they start feeling it.
"Puerto Rico risks becoming an island for the few, with an elite that will be living comfortably and for the middle class to develop their dreams elsewhere," he said. Government attorney Peter Friedman said the deal would lock in money for the government so it can continue to provide essential services.
"Bondholders will not give more money if this deal is rejected," he said. "What we can't afford is losing and getting nothing." Only one person out of the 10 members of the public who testified Wednesday favored the deal. Adriana Irizarry, a mother of three, said she and her family wanted to put "this frustrating chapter" of their lives behind them.
"If this plan is not approved now, Puerto Rico will be entangled in a costly litigation ... while we will receive no return on our savings," she said, adding that the family has already lost much of its investment. "We feel betrayed and defrauded by our government who is not willing to pay us back as promised."
Eva Prado, a lawyer who represents a group demanding a complete audit of Puerto Rico's debt, said during her testimony that people do not have enough information about how it has been accumulated and whether it's all legal.
"The people of Puerto Rico are paying off this debt with their life," she said, adding that they should not pay for the actions of government officials and others. "Make justice for the vulnerable, for the people not represented in this court."
On Monday, the control board asked Swain to invalidate $6 billion worth of debt issued by Puerto Rico, including all general obligation bonds issued in 2012 and 2014, because it alleges it violated debt limits established by the island's Constitution. Swain is holding a hearing on the issue at month's end.
Before the hearing began, more than 100 protesters gathered in front of the courthouse to protest the deal. As attorneys began filing into the courthouse, protesters yelled, "Vultures! Vultures!" Johnny Rodriguez, a government worker who traveled nearly an hour from the eastern mountain town of Juncos for the protest, said he wanted to defend the people of his island.
"We're the victims," he said. "Given the situation that the island is going through, they are condemning future generations and forcing them to carry this debt." Former Puerto Rico Sen. Maria de Lourdes Santiago took a megaphone to decry the control board, which she said is damaging the future of Puerto Rico.
The restructuring deal is "socialism for the rich," she said, adding that she worries the government will be forced to take away funds and essential services from the people to pay its debt. Taylor-Swain has set aside two days for the hearing.
If approved, the deal would be the second debt-restructuring agreement since Puerto Rico announced it was unable to pay its debt in June 2015. In November, it completed the first with creditors holding more than $4 billion in debt issued by the now-defunct Government Development Bank.
Puerto Rico has seen its population dwindle from 3.7 million to 3.2 million in roughly a decade as a result of the economic crisis, coupled with the aftermath of Hurricane Maria, which hit in September 2017.