Feb 23 (Reuters) - Puerto Rico would substantially reduce its core government debt load under a new deal announced on Tuesday, but obstacles remain for the U.S. territory’s exit from bankruptcy. The island’s federally created financial oversight board said its agreement with certain bondholders was a major step toward resolving the bankruptcy, which began in 2017 in an effort to restructure about $120 billion of debt and other liabilities, including unfunded pensions. “I’m hopeful that people over time will understand this is likely to be the most fair and confirmable resolution to exit bankruptcy,” Natalie Jaresko, the board’s executive director, told reporters. The deal will be included in a plan of adjustment the board expects to file in March in federal court, with the hope of court approval in the fall. Under the agreement, owners of $18.8 billion of general obligation (GO) and Public Building Authority (PBA) debt would receive a $7 billion cash payment and $7.4 billion in new bonds, as well as a capped share of the amount of sales tax revenue that exceeds 2020 fiscal plan projections. The deal would result in an average 27% haircut for GO bondholders and 21% for PBA bondholders and would reduce Puerto Rico’s total debt service payments by 62%, according to the oversight board. That plan also includes pension cuts, a sticking point for Governor Pedro Pierluisi and the island’s legislature which may have to approve any new debt included in the deal. Pierluisi, who took office in January, said while he supported the agreement’s economic terms, he remained opposed to cuts in pension payments for public sector workers and as a result the government would not be part of the agreement. (Reporting By Karen Pierog; Editing by Alden Bentley and Richard Chang)