The attorneys said all bondholders need to be alerted and that they worry some will be treated more favorably than others as they stressed the need to reach a consensus on how to proceed. "It is hard to overemphasize how big a boulder is being dropped," said attorney Mark Ellenberg. "We should be walking down this road. Not running."
The hearing comes more than two weeks after a federal control board that oversees Puerto Rico's finances asked federal Judge Laura Taylor-Swain to invalidate $6 billion worth of debt, including all general obligation bonds issued in 2012 and 2014, alleging that issuance violated debt limits established by the island's constitution. Swain, who is overseeing a bankruptcy-like process for Puerto Rico's government, has not ruled on the issue. However, she said on Wednesday that she intends to allow for a two-stage procedure to identify all bondholders affected and reach an agreement on how to proceed with the case.
The request to dismiss some debt is part of an overall push to restructure a portion of Puerto Rico's more than $70 billion public debt load after the government announced in June 2015 that it was unpayable. Swain held a two-day hearing last week on a separate restructuring deal that involves more than $17 billion worth of government bonds backed by a sales-and-use tax. The deal was approved after more than 8,000 bondholders voted on it, but Swain has not yet ruled on it.
At the start of Wednesday's brief hearing, board attorney Michael Luskin announced that the findings of an investigation into consulting firm McKinsey & Company will be released in mid-February. The firm owns Puerto Rico bonds and was hired to advise the government on its finances, leading critics to object to a potential conflict of interest. Luskin said a draft of the report contains recommendations for the board.
Another major debt restructuring hearing is scheduled for mid-March.