Making waves
Barbados used US$146.5m of dual-currency blue loans to finance a groundbreaking debt conversion which created new funding for marine conservation and also included a new “pandemic” clause that allows the country to defer debt payments in an emergency.
The island nation was able to generate savings of up to US$50m to protect its oceans by refinancing expensive existing government debt with cheaper credit-enhanced financing that it used to buy back government bonds trading below par.
The blue loans came with a US$100m guarantee from the Inter-American Development Bank and a US$50m guarantee from global conservation organisation The Nature Conservancy in a hybrid blended financing that combined multilateral and private capital – and made waves.
“There is a lot of excitement in the market from development financial institutions and governments to replicate these types of transactions,” said Ramzi Issa, global head of credit investor products structuring at Credit Suisse.
Barbados’ transaction built on a similar debt conversion and blue bond for Belize in November 2021. Both deals showed that developing countries can use liability management to create a pot of money to fund environmental commitments, without increasing debt.
The versatile structure can also be used with other ESG labels, such as green or social bonds. “This isn’t an exclusive structure to finance ocean conservation; it can be done for social programmes and terrestrial conservation,” Issa said.
The Natural Disaster & Pandemic Event Clause is an equally important innovation as it allows principal repayments to be deferred for up to two years in an emergency, effectively giving a grace period to repay debt.
Barbados prime minister, Mia Mottley, has been pushing for the development for some time and described the transaction as a "game changer".
The transaction was designed and structured by White Oak Advisory, which played a key role in bringing it to market and had also acted as financial adviser on Barbados' 2019 debt restructuring.
Around half of the total (US$73.5m) was financed directly by CIBC FirstCaribbean in Barbadian dollars as a 15-year blue loan at 3.25% that was used to buy back local currency bonds. A second blue loan was issued by an SPV at 4.395%, which Credit Suisse used to issue US$73.25m of blue bonds with an average life of 9.25 years. This consisted of two bonds backed by the Triple A rated IDB guarantee and the Double A rated TNC guarantee, wrapped with a cross-currency overlay for European and Asian investors.
Proceeds were used to repurchase US$77.6m of Barbados’ US dollar bonds in a reverse Dutch auction at 92.25 cents in the dollar.
The US$50m of savings generated will be diverted to Barbados Environmental Sustainability Fund and will protect up to 30% of the country’s ocean area by 2030.
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