Global law firm Dentons advised the Ministry of Economy and Finance of the Republic of Ecuador on the biggest-ever debt-for-nature swap transaction to date.

This landmark transaction involved the exchange of Ecuador’s sovereign debt  — consisting of existing Step-Up Coupon Notes issued by Ecuador and due 2030, 2035 and 2040 (which were tendered for purchase by their respective noteholders under a cash tender offer announced and conducted by Credit Suisse International (CSI)) — for new sovereign debt consisting of a term facility granted to Ecuador.

Under the transaction, Ecuador, as borrower, entered into a fixed-rate term facility with GPS Blue Financing Designated Activity Company (GPS Blue), as lender, and The Bank of New York Mellon (BNYM), as facility agent, in an aggregate principal amount of approximately US$ 656 million, maturing in 2041, with a 7-year grace period for principal repayments. This transaction settled on May 9, 2023.

The term facility is guaranteed, in respect of certain payment obligations of Ecuador, under a partial credit guarantee granted by the Inter-American Development Bank (IADB) up to a maximum guaranteed amount of US$ 85 million.

In addition, the term facility is covered, in respect of certain payment obligations of Ecuador, under a political risk insurance (PRI) policy provided by the U.S. International Development Finance Corporation (DFC), an agency of the United States of America, for the benefit of the lender and the facility agent. This represents the biggest-ever PRI policy provided by DFC to date.

The payments to be made under the term facility by Ecuador to the lender are used as reference for the separate payments to be made in turn by the lender, in its separate capacity as issuer, under the Galápagos Marine Conservation Linked Bonds, the “blue bonds” associated with marine conservation and preservation in the Galápagos.

As a core feature of the transaction, the Ministry of Environment, Water and Ecological Transition and the Ministry of Production, Foreign Trade, Investments and Fisheries of the Republic of Ecuador undertook to comply with or achieve certain sustainability commitments by agreed deadlines. These sustainability commitments relate to the management and conservation of the marine reserve surrounding the Galápagos and the growth of the natural capital of the Galápagos Islands and their marine ecosystems.

In addition, Ecuador committed to make quarterly payments dedicated to conservation and linked to the debt exchange of initially US$ 4.5 million to the lender until 2041, which the lender has in turn committed to contribute to Galápagos Life Fund (GLF), a special purpose vehicle which will fund projects designed to promote the maintenance, growth and security of the natural capital of the Galápagos Islands and their marine ecosystems.

Jesús Mardomingo, Partner in the Banking and Finance practice in Madrid, Yun Ma, Partner and Europe Co-head of the Sovereign Advisory practice, based in Paris, and Rubén Eduardo Luján, Partner and Co-Head of the Banking and Finance practice for Latin America and the Caribbean, based in Toronto, co-led Dentons’ multi-jurisdictional legal team. The core team for this transaction also consisted of Lola Noguera, Associate in the Banking and Finance practice in Madrid, and Carolina Barzola, Of Counsel in the Sovereign Advisory practice in Prague.

Walter Van Dorn, Partner in the Capital Markets practice in New York, and Luis F. Torres, Partner in the Banking and Finance practice in Washington DC, led the US team on the transaction. Jesús Mardomingo and Stephen Shergold, Partner in the Environment and Natural Resources practice in London, led the specialized team on Environmental, Social and Governance (ESG) matters for the transaction, with the assistance of Rachel Juliet Welch-Phillips, Partner in the ESG and Sustainable Finance practice in Trinidad and Tobago, Annabel Hodge, Senior Associate in the Environment practice in London, and Amy Morin, Associate in the Environment practice in London.

Lazard acted as financial advisor to the Ministry of Economy and Finance of the Republic of Ecuador.

Dentons’ Sovereign Advisory practice advises governments – particularly in emerging markets – with matters related to matters of public debt, debt restructuring, energy, infrastructure and mining projects, taxation, international trade, and foreign investment.