Credit Suisse-Ecuador Debt-for-Nature Swap Deal

May 8, 2023

Swiss bank Credit Suisse has bought Ecuadorian bonds worth $1.6 billion in a debt-for-nature swap. The deal will commit Ecuador to spending $18 million annually for the next 20 years on conservation in the Galapagos Islands, one of the world’s most precious ecosystems. The remote islands are a UNESCO world nature heritage site, home to unspoiled nature and animal life that was crucial to Charles Darwin’s research before publishing his theory of evolution.

The Cost of the Swap

The Swiss bank purchased the bonds at less than half their original value, at a cost of just $644 million. Due to the recent drop in bond prices, Credit Suisse utilized only $644 million of the original offer to purchase the 2030, 2035, and 2040 bonds at a rate of 53.25% to 35.5% of the issue price. Initially, the bank had proposed to spend up to $800 million on the bonds.

Replacing the Old Debt

The new debt-for-nature swap will replace the old debt with a cheaper-to-service “Galapagos Bond” maturing in 2041, partly underwritten by the Inter-American Development Bank (IDB) and the US International Development Finance Corporation. This will contain Credit Suisse’s risk. The Inter-American Development Bank (IDB) has authorized a financial assurance of $85 million for swapping $800 million of Ecuador’s government bonds, which could be utilized to cover the initial six quarterly interest payments, if necessary.

Political Turmoil and Slump in Bond Prices

Ecuador has been in severe financial peril, and the country’s National Assembly seeks to impeach President Guillermo Lasso for alleged embezzlement, causing a slump in bond prices. Ecuador’s public debt amounted to around $66.68 billion in 2022, according to the Germany-based data platform Statista.

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