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Puerto Rico Faces Off With Creditors for the First Time in Bankruptcy Court Wednesday

Puerto Rico on Wednesday will face investors for the first time in a bankruptcy court, as it kicks off the biggest and most divisive debt restructuring in U.S. public finance history.

While Wednesday’s hearing, in federal court in San Juan, is only the start of a process that could take months or years, it is also a culmination of more than two years of bitter debate between Puerto Rico’s government, its creditors and federal lawmakers over how the island should rework its debt load of $70 billion.

The bankruptcy process will cover about half of Puerto Rico’s debt, though other local public agencies are restructuring out of court, and some could enter bankruptcy later.

The bankruptcies will also address $50 billion in underfunded pension liabilities, as Puerto Rico battles a historic crisis marked by a 45% poverty rate and near-insolvent public health and retirement systems.

Puerto Rico, home to 3.5 million U.S. citizens, has spent the last ten years in recession with debt piling up to pay for basic services.

Earlier this month, the U.S. territory’s central government entered a modified version of bankruptcy protection created under a federal rescue law known as PROMESA as a way to legally pave the way to cut its debt. The island’s sales tax authority, known as COFINA, followed suit days later with its own filing under Title III of the PROMESA law, which provides for the bankruptcy mechanism.

The hearing will open with a discussion on the expected timetable for a debt-cutting plan, as well as settlement talks and possible mediation, according to an agenda filed on Tuesday. That may give insight into the style and pacing of U.S. District Judge Laura Taylor Swain, the Manhattan jurist tapped by the U.S. Supreme Court to handle the cases.

The rest of the agenda, though procedural, could shed light on how aggressive Puerto Rico’s creditors will be in pursuing a scorched-earth strategy to thwart debt-cutting efforts.

Motions that in many cases would be viewed as mere housekeeping—for example, Puerto Rico’s request to consolidate the two bankruptcy cases, and to allow banks to continue honoring transfers and deposits—have already been met with staunch objections from creditors.

The bankruptcy promises to be lucrative for lawyers and financial advisers who represent the parties involved in the proceeding. Between the two cases, already more than 100 lawyers have requested permission to appear before Swain, court filings show.