Ecuador’s Planned $800-Million Debt-For-Nature Gets IDB Guarantee

Ecuador received a guarantee from the Inter-American Development Bank to help it potentially swap up to $800 million of its sovereign bonds in return for boosting conservation of the Galapagos Islands, in what would be the largest deal of its kind if completed.

IDB has approved an estimated $85 million financial guarantee to back a new debt instrument that seeks to lower the cost and refinancing risk of Ecuador’s sovereign debt, according to a document describing the potential transaction published on the website of the Washington-based bank. The IDB surety will be provided along with a political risk guarantee by the US International Development Finance Corporation, or DFC, the document said.

Credit Suisse Group Inc. plans to buy up to $800 million of three Ecuador bond issues maturing between 2030 and 2040 at prices ranging from 30.5 cents to 53.25 cents on the dollar, according to an April 26 tender announcement. Ecuador, meanwhile, plans to raise new guaranteed debt to fund that tender, the government said its current medium term debt strategy. A successful debt swap stands to help lower Ecuador's total debt obligations as the notes are likely to be bought back at a deep discount.

The new borrowings could have an interest of around 7%, less than half the yield investors demand to hold Ecuador’s regular bonds, the document said. Specific terms of the IDB guarantee and transaction could change due to market conditions and other factors.

Savings from the swap will partly be used to create a conservation fund and provide additional revenue to protect habitats in the Galapagos Islands, according to the document on IDB’s website. Credit Suisse’s bond repurchase plan is contingent on various conditions, including Ecuador obtaining a new credit facility, also arranged by the Swiss bank.