JPMorgan wraps up US$1bil deal for El Salvador

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NEW YORK: JPMorgan Chase & Co has structured a US$1bil deal for El Salvador, equivalent to roughly 14% of its debt, in an arrangement that allows the country to refinance a portion of its debt and help fund the conservation of its wetlands.

The transaction, which marks JPMorgan’s first foray into the market for debt-for-nature swaps, was arranged together with the US International Development Finance Corp (DFC), El Salvador and DFC said in a statement shared with Bloomberg.

Catholic Relief Services, a US-based humanitarian organisation, and the Environmental Investment Fund of El Salvador, or FIAES, will oversee the conservation component of the deal, which will help protect and restore the watershed of the country’s longest river.

El Salvador has “effectively brought all parties together to create a structure that combined traditional and innovative capital market technologies aimed at achieving execution certainty and cost savings,” Robert Cozzari, co-head of Latin America markets at JPMorgan, said by email.

Under terms of the deal, El Salvador has repurchased US$1.03bil worth of its outstanding bonds at discounts to par.

The arrangement, which is the first of its kind to target riverine ecosystems, means the country will generate more than US$352mil in savings, which will be used to protect the Rio Lempa river and its surroundings.

The deal “not only reaffirms this government’s commitment to economic growth, it also enables us to achieve this growth while preserving one of our most precious natural resources,” El Salvador President Nayib Bukele said in the statement. “With this debt conversion, we aim to transform the environmental and economic future of El Salvador.”

The transaction is backed by political-risk insurance provided by DFC. The Development Bank of Latin America and the Caribbean is providing a US$200mil standby letter of credit, the documents show.

Such credit enhancements are a key reason why debt-for-nature swaps attract private investors at borrowing costs that countries like El Salvador, which carries “junk” ratings at Moody’s Ratings, S&P Global Ratings and Fitch Ratings, can afford.

The allocation of savings from the deal allow US$350mil to go toward the Rio Lempa Conservation and Restoration Programme over the next 20 years.

Of that, US$200mil will fund the programme directly, while US$150mil will go toward an endowment intended to extend the project’s funding beyond 2044, the documents show.

The programme also will make grants to non-profits in El Salvador to help support of these goals.

In addition to the Rio Lempa programme, El Salvador has committed to a series of new water-protection measures.

Until now, the only two banks to complete debt-for-nature swaps were Credit Suisse and Bank of America Corp (BofA).

At least four other global banks currently have deals in the pipeline, Bloomberg has previously reported.

These include UBS Group AG, which bought Credit Suisse early last year. The Swiss bank is close to completing a deal for for Barbados, Bloomberg has reported.

Other deals in the works include a swap being arranged by Goldman Sachs Group Inc and BofA for Ecuador.

Earlier this month, El Salvador asked holders of nine US dollar-denominated debt agreements to tender their notes, which triggered a rally in the country’s bonds. — Bloomberg

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