The Commonwealth of Puerto Rico’s Financial Oversight and Management Board, the body tasked with overseeing the restructuring in billions of dollars of the island’s debt, has reached an agreement with holders of around $35 billion of its bonds, accounting for nearly half of its total bonded debt.

In a statement, the board and the Lawful Constitutional Debt Coalition (LCDC), which includes major bondholders, said the agreement calls for a 36% haircut on pre-2012 general obligation bonds and a 27% haircut on public authority bonds that carry a constitutional guarantee. The agreement would result in a 60% average haircut for all $35 billion.

The deal with supporting creditors “will reduce the amount of Commonwealth-related bonds outstanding to less than $12 billion,” according to the oversight board.

The oversight board and the LCDC said they envisioned a critical mass of creditors would sign the agreement; however, the government of Puerto Rico said in a statement that it would reject the deal, citing its opposition to pension cuts that are called for.

Nearly 40% of pensioners would be subject to benefits cuts, although government retirees who receive $1,200 a month or less in benefits would be shielded from any reduction under the settlement. Those collecting pensions above the threshold would face cuts of as much as 8.5%.

The oversight board was appointed in 2017 to oversee $73 billion in debt restructuring, the largest in U.S. municipal bond market history. In February, a U.S. District approved a deal to restructure about $17 billion of sales tax backed bonds, in which senior bondholders saw 93% recoveries. Junior bondholders received 53%. Judge Laura Taylor Swain also approved the restructuring of around $4 billion for the Government Development Bank’s debt.

Under this agreement, participating bondholders would get a combination of new bonds and cash. General obligation bondholders would get, in aggregate, a baseline recovery of about 64%.

Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan, who is representing the LCDC, said the deal was positive for Puerto Rico and would accelerate its exit from bankruptcy.

Christian Sobrino Vega, the chief executive officer of the Puerto Rico Fiscal Agency and Financial Advisory Authority, said the deal was unacceptable.

“And we can confidently state that no legislation, executive action, or other administrative approval required from the government of Puerto Rico will be taken to implement an agreement that directly or indirectly supports a plan of adjustment that cuts payments to our retirees,” Vega said.

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