The Puerto Rico electric company’s bonds rallied Tuesday after it reach a preliminary agreement with bondholders to restructure its debt, marking a major advance in the government-owned utility’s efforts to emerge from bankruptcy.

The pact -- reached by the island’s government, the territory’s federal oversight board and a key group of investors -- would slash the debt service bills of the Puerto Rico Electric Power Authority more deeply than an agreement the board rejected a year ago. The board said in a statement Monday that it’s working to finalize a deal for the power company known as Prepa.

The company’s bonds soared in early trading Tuesday, when they were among the most active municipal securities. Debt due in 2032 jumped to an average of 57 cents on the dollar from 40.7 cents Monday, according to data compiled by Bloomberg.

The agreement "is an important milestone and a big step forward towards Prepa’s debt restructuring process, which will support the privatization and transformation of Prepa into a modern, world-class utility,” Jose Carrion, the chairman of the oversight board said in the statement. “We are hopeful that the terms and financial concessions agreed to with this group of Prepa bondholders can lead to a fair consensual transaction that adjusts their ultimate level of recoveries with the success of the utility."

The step marks a major stride toward resolving years of negotiations with creditors of the territory’s electric company, which was heavily battered by Hurricane Maria last year and has been struggling with management turmoil. While the company had previously struck a deal with creditors, it was rejected over a year ago by the oversight board because of concerns it failed to do enough to modernize the utility and lower residents’ costs.

The latest agreement would require bondholders to take a loss by exchanging their debt for two new classes of securities for the equivalent of about 77.5 cents on the dollar, well above where the securities had been trading.

They would receive one type, which matures in about 40 years and pays 5.25 percent interest, at an exchange rate of 67.5 cents on the dollar. The second -- so-called growth bonds that are due in 45 years and whose payments are pegged to the island’s turnaround -- would be exchanged at 10 cents on the dollar. The deal that was rejected by the board would have given investors 85 cents.

Prepa is still negotiating with other creditors, including bond insurers. The agreement announced Monday included Knighthead Capital Management, Franklin Advisers, BlueMountain Capital Management, OppenheimerFunds, Silver Point Capital, Angelo, Gordon & Co. and Marathon Asset Management, according to a filing with the Municipal Securities Rulemaking Board.

The rally Tuesday extends a rebounded in the price of the island’s debt this year as federal aid flowed in and investors grew more optimistic about the its financial and economic recovery.

This article was provided by Bloomberg News.