Credit Suisse purchased $1.6 billion of Ecuador’s loans to safeguard the Galapagos Islands in the biggest debt-for-nature transaction ever.
The plan entails purchasing three of Ecuador’s biggest government bonds at a steep discount, which have collapsed in value this year due to a political crisis, and investing the proceeds in one of the world’s most prized ecosystems and Charles Darwin’s inspiration.
Ecuador’s effort to create an environmentally beneficial “blue bond” will be the biggest “debt-for-nature swap” ever.
On Thursday, Credit Suisse said that Ecuador’s 2035 bond was repurchased for 38.5 cents, its 2030 note for 53.25 cents, and its 2040 bond for 35.5 cents.
It comes at a time when Ecuador’s National Assembly is considering impeaching President Guillermo Lasso for corruption, which Lasso rejects.
Sources reported last year that the debt swap will be funded by the Pew Charitable Trusts, a co-founder of the ocean conservation organization Blue Nature Alliance.
Ecuador’s “blue” bond borrowing rates might be reduced by “credit guarantees” from the Inter-American Development Bank and the United States’ International Development Finance Corporation.
Last year, the IADB posted a $85 million guarantee for a “Sustainable Development and Biodiversity Program in Ecuador” on its website, but Pew and the banks have yet to comment on the buyback.
Ecuador is 600 miles away from the volcanic Galápagos Islands. Because of their rarity, giant tortoises, marine iguanas, and Darwin’s finches can only be found here.
Bondholders have also welcomed the buyback plan for its environmental benefits and as a wise way for the government, which has defaulted several times in recent decades, to repair its finances.
“Overall, I think it is positive,” said Carl Ross of GMO, a veteran of emerging market debt restructurings such as Ecuador’s.
Why not take advantage of the reduced bond prices to control liabilities? It should be considered by a country attempting to regain market trust.
According to Tellimer analyst Stuart Culverhouse, additional Ecuadorian bonds may have been purchased.
Credit Suisse made an offer of up to $800 million, but due to the reduced bond price and bondholder sales, it was restricted to $644 million.
“The impact in terms of lower debt service, and lower debt stock, is relatively mild,” Culverhouse said, projecting a 10% fall in loan stock from $16.5 billion to $14.9 billion. buys $1.6 billion in bonds to safeguard the Galapagos Islands
