Ecuador Completes Second Debt-for-Nature Swap

By Virginia Furness

LONDON (Reuters) – Ecuador has completed its second debt-for-nature swap, unlocking $460 million to protect and manage the forests and wetlands of its Amazon rainforest, according to NGO The Nature Conservancy.

By buying back over $1.5 billion of its discounted existing bonds with cheaper new financing, Ecuador will realize almost half a billion dollars in savings over a 17-year period to invest in conserving the terrestrial and freshwater ecosystems of the Amazon.

The Amazon Biocorridor Program aims to improve management of 4.6 million hectares (11.37 million acres) of existing protected areas while safeguarding an additional 1.8 million hectares of forests and wetlands.

The plan also includes protection for 18,000 km (11,185 miles) of rivers, enhanced climate resilience, and support for human wellbeing, TNC reported.

Debt-for-nature swaps create a stable, long-term funding stream for conservation projects by freeing up funds that governments would have spent on debt servicing.

This deal is projected to generate $23.5 million annually for 17 years, with $19 million directed to the Amazon Biocorridor Program and $4.5 million invested through an endowment fund.

Additionally, it reduces Ecuador's debt stock by $527 million, yielding $800 million in net fiscal savings for the country by 2035 based on altered repayment costs and debt repurchase.

"Through innovative financing and conservation mechanisms, this program centers the Amazon in a transformative vision that protects one of the planet's most biodiverse ecosystems," stated Inés Manzano, Minister of Environment for Ecuador.

The conservation program and financing package were crafted by TNC and the Ecuadorian government. It involved a new $1 billion bond arranged by Bank of America, alongside $1 billion of political risk insurance from DFC and a $155 million partial credit liquidity guarantee from the Inter-American Development Bank (IDB).

Research firm Tellimer described this as "refinancing done right", highlighting that by employing credit guarantees for new debt and prioritizing the retirement of the most discounted bonds, Ecuador maximized its savings.

Ecuador opened its offer to investors to buy back existing bonds on Dec. 3. Investors submitted $7.6 billion of bonds, and the government accepted $1.53 billion on Dec. 10, as per a stock exchange filing.