Puerto Rico Embarks On Historically Huge Debt Protection Hearings

Updated at 2:30 p.m. ET

For years, Puerto Rico has grappled with an ever-mounting debt crisis, watching as its public-sector bills have grown to more than $70 billion. Including what the U.S. territory owes to pension funds, that debt exceeds $120 billion.

Now, Puerto Rico's struggle with its creditors has stepped into U.S. federal court, where an unprecedented debt-restructuring case opened with a hearing Wednesday.

Puerto Rico filed to restructure its debt two weeks ago. That kicked off the first-ever use of a federal law tailored specifically for the recession-plagued island — which, because it is a territory, is not eligible for the Chapter 9 bankruptcy protections that cities such as Detroit have filed for in the past.

That tailor-made law, passed last year under the name PROMESA, set up a process similar — though not identical — to bankruptcy, called Title III. It is under that provision that Puerto Rico filed for protection.

As observed by Laura Taylor Swain, the U.S. district judge hearing the case, the process promises to be difficult. The way forward for Puerto Rico "will certainly involve pain," she said in court Wednesday. But "failure is not an option."

Swain, of the Southern District of New York, has combined two major Title III filings made earlier this month by Puerto Rican authorities — one for its general obligation (or GO) debt, and one for debt that's backed by the commonwealth's sales tax revenues (or COFINA).

Copyright 2017 NPR. To see more, visit http://www.npr.org/.