Belize set to wrap transformative blue bond restructuring
DFC guarantee and distressed bond prices allow for deal that commits government to marine conservation spending
Central American country Belize is on the verge of completing an innovative debt restructuring that will greatly reduce its debt burden and guarantee funding for marine conservation projects. It comes as financiers and conservationists look for ways to channel funding into protecting the world’s oceans — one of the most underfunded of the United Nation’s Social Development Goals.
Belize is using the Nature Conservancy’s Blue Bonds for Ocean Conservation programme to fund a buyback — at 55 cents on the dollar — of its $526.6m bond maturing in 2034. The tender offer for the 2034s will expire on October 15, with around 85% of the country’s bondholders having already agreed to participate in the deal. Credit Suisse is providing the blue bond financing, which GlobalMarkets understands is likely to close this month.
“There has been woeful under investment of private capital into the oceans,” said one sustainable finance banker in the USA. “The attraction of this deal is how it experiments with financial structuring to capitalise on the work that is being done.”
The Nature Conservancy told GlobalMarkets that it has been working in Belize for 30 years and sees the country as a “global conservation leader”. But the structure of the Belize deal allows the non-profit, which is funded by philanthropic donations, to scale up its operations.
As part of the blue bond financing, Belize has committed to accelerating its marine conservation commitments, including “enhanced protections for its coastline, reef and ocean territory”. It will also prefund a so-called Marine Conservation Endowment Account, to be administered by the Nature Conservancy, of $23.4m to “support future marine conservation projects” in the country. Moreover, Belize — which has restructured its international bond four times in the last 15 years — will sharply reduce its debt burden.
“This transaction is a win-win,” said one banker close to the deal. “It is a solution to what has been a stubborn debt structure, while at the same time there’s money available for conservation, which is what Belize needs to do to attract more tourists. Being more sustainable also represents greater revenue potential for Belize.”
Whether the deal can be replicated relies on specific circumstances, however.
“One key condition is that the debt has to be trading below par in order to capture the discount in the buyback and free up funding for sustainable projects,” said the sustainable finance banker. “This structure won’t be applicable to everybody.”
Moreover, the deal works largely because the US government’s Development Finance Corporation (DFC) is providing political risk insurance, increasing the credit quality and reducing the cost to Belize of the blue bond.