Puerto Rico is seeking to use federal bankruptcy-like proceedings to slash its $70 billion debt after more than a year of talks with bondholders and insurers, pushing the territory toward the biggest restructuring ever by a U.S. state or local government.

After a decade-long recession, a population exodus and years of borrowing to cover budget gaps, the U.S. commonwealth is asking a court to force creditors to take losses on their investments. The process, called Title III, was created by a U.S. law enacted last year to help Puerto Rico emerge from its economic malaise.

The move, announced by Governor Ricardo Rossello and then followed by a filing in U.S. court in San Juan, came after he and his predecessor both failed to persuade the island’s major creditors to accept less than they’re owed and the government faced an onslaught of new lawsuits stemming from a series of defaults.

“An orderly process for working out Puerto Rico’s debt trouble provides the best hope for Puerto Rico and also the best chance for most creditors to emerge better off,” Brad Setser, senior fellow at The Council on Foreign Relations, said in a telephone interview. “But clearly there’s going to be fights between different groups of creditors.”

Puerto Rico’s restructuring will be the largest ever in the $3.8 trillion municipal-bond market. The island, where nearly half its residents live in poverty, has struggled since 2006 to grow its economy. About 62,000 residents left the island last year, the steepest decline since 2004.

“We have reached this decision because it protects the best interests of the people of Puerto Rico,” Rossello, who took office in January, said.

Some bondholders disagree. A group of hedge funds holding general-obligation bonds claim a deal with Puerto Rico was within reach Tuesday until a federal board that oversees the commonwealth’s finances intervened and blocked a potential agreement.

With the board’s Title III filing, “the governor has forfeited all power over the restructuring, and the economy of Puerto Rico will be put on hold for years,” Andrew Rosenberg, a partner at Paul Weiss Rifkind Wharton & Garrison, who advises the group of general-obligation bondholders, said in an email. “Make no mistake: The Board has chosen to turn Puerto Rico into the next Argentina.”

The financial collapse promises to impose deep losses on bondholders who for years snapped up Puerto Rico’s securities, which are tax-free throughout the U.S. U.S. states can’t file for bankruptcy, and investors bought the bonds assured that it wasn’t a legal option for Puerto Rico either.

The scale of the restructuring is far larger than Detroit’s record-setting $18 billion bankruptcy, and it’s unclear how long a court proceeding would last or how deep would be the cuts that are imposed on bondholders. The island’s financial recovery plan covers less than a quarter of the debt payments due over the next decade, assuming Puerto Rico’s budget can be steadied.

Rossello’s latest offers to creditors show the commonwealth believes general obligations should receive a better recovery than its sales-tax bonds, another major class of its debt. The latest proposal would have provided as much as 90 cents on the dollar to general-obligation bondholders.

Analysts have been speculating that the island would have no choice but to have a court oversee its debt restructuring, given the unprecedented challenge of striking a voluntary agreement with so many creditors.

The prices of Puerto Rico’s major bonds were little changed after the announcement. General obligations due in 2035, among the most actively, traded for an average of 65.6 cents on the dollar Wednesday, up from 64.7 cents Tuesday, according to data compiled by Bloomberg.

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