World’s Biggest Blue-Bond Swap Emerges To Protect The Galapagos

By Esteban Duarte, Maria Elena Vizcaino and Natasha White

(Bloomberg) –The world’s biggest ocean friendly debt swap is coming together in Ecuador, with Credit Suisse Group AG offering a yield of less than 6% on a new bond, according to people familiar with the matter. 

Proceeds from the bond sale will fund the purchase of Ecuador’s heavily discounted sovereign debt, providing savings the government will use to protect the Galapagos Islands, said the people, who asked not to be identified because they’re not authorized to speak about it. 

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“This is a positive development as it will reduce debt servicing, and in the short term it could lead to a new floor in debt prices,” said Ramiro Blazquez, head of strategy at BancTrust & Co. in Buenos Aires. “The government would end up repurchasing its debt at a deep discount indirectly financed by a blue bond, but its new debt will be a loan owed to the special-purpose vehicle.”

The Swiss lender agreed to buy $1.63 billion of the sovereign debt from bondholders in a tender for up to $800 million, according to a regulatory filing on Thursday. The bonds due in 2040 gained about 4 cents Friday to trade at 36 cents on the dollar, the highest since mid-February. 

The new securities, which benefit from multilateral guarantees, are expected to be rated by Moody’s Investors Service at Aa2, the third-highest investment-grade score. That’s 16 notches above the nation’s foreign-issuer rating. 

Existing debt due in 2040 sold by Ecuador, which has defaulted 11 times on its overseas bonds since its independence in 1830, yields about 16%. 

The new Galapagos bonds will be issued by the GPS Blue Financing DAC, a special purpose vehicle. The issuer will then lend the funds to the Ecuadorean government with an insurance from the US International Development Finance Corporation. The transaction also benefits from a $85 million guarantee from the Inter-American Development Bank. 

The transaction comes just as the odds President Guillermo Lasso will skirt an impeachment attempt increase. 

The blue deal is similar to ones Credit Suisse has participated in previously. The lender orchestrated a 2021 debt-for-nature swap for Belize worth $364 million with the charity Nature Conservancy. Last year, it sealed another $150 million deal for Barbados. 

Representatives for Ecuador and Credit Suisse declined to comment.  

Terms of the Tender

Ecuador’s notes	Face value accepted	Purchase price
Bonds due 2030	$202.34 million	53.25 cents per dollar
Bonds due 2035	$1 billion	38.5 cents per dollar
Bonds due 2040	$420.2 million	35.5 cents per dollar

Source: Credit Suisse

The sale is a major development for Ecuador, which before the recent Credit Suisse purchases had about $17.3 billion outstanding of dollar bonds. The nation’s debt due in 2030 advanced 3 cents to 55 cents on the dollar Friday, according to indicative prices compiled by Bloomberg.

“The results of the tender indicate that the market believes Ecuador’s bonds are under-priced,” said Katrina Butt, an economist for emerging markets at AllianceBernstein in New York. “Prices today are adjusting to reflect that shift in sentiment.” 

–With assistance from Zijia Song.

© 2023 Bloomberg L.P.