Ecuador Secures Over USD 800 Million for Conservation through Landmark Debt Conversion

By Robalino

The Republic of Ecuador, with the support of the U.S. International Development Finance Corporation (DFC), the Inter-American Development Bank (IDB), The Nature Conservancy (TNC), and Bank of America announced the financial close of a debt conversion enabled by USD 1 billion in political risk insurance from DFC.

The debt conversion refinanced approximately USD 1.53 billion of Ecuador’s international bonds, generating over USD 800 million in net fiscal savings for Ecuador by 2035. The transaction is also expected to generate approximately USD 460 million to support the Amazon Biocorridor Program for conservation of terrestrial and freshwater ecosystems in the Ecuadorian Amazon – representing the largest amount raised for conservation by any debt conversion to date.

Robalino was the local advisor to DFC and correspondent for Hunton Andrews Kurth LLP. The Robalino team was composed of Javier Robalino Orellana, Martín Pallares, Andrés Donoso, Daniel Robalino, Rafael Serrano, Carol Riofrio, Christian Narváez, and José Salvador.

"Ecuador is a key U.S. ally and one of DFC’s largest markets worldwide," said DFC CEO Scott Nathan. "This announcement underscores DFC’s commitment to leveraging innovative financial tools to reduce sovereign debt, strengthen resilience to economic coercion, and raise money for biodiversity. DFC and the United States are proud to have enabled this debt conversion transaction to benefit the Amazon Biocorridor Program," Mr. Nathan added. 

To structure this innovative operation, the IDB issued a USD 155 million partial credit guarantee and Bank of America acted as the sole arranger, bookrunner, coordinator and initial purchaser of the new financing that was used to fund the tender of the pre-existing Ecuadorian sovereign bonds, as well as the sole dealer manager of the tender. The operation will provide institutional and public policy support to help Ecuador reach fiscal targets as well as enhance management of natural capital and improve public financing for environmental sustainability.

The combination of DFC’s political risk insurance and IDB’s liquidity guaranty provides critical credit enhancements, which, in turn, will catalyze additional investment to support a comprehensive terrestrial and freshwater conservation program co-designed with indigenous people and local communities to advance biodiversity conservation, climate resilience, and the well-being of communities in the Ecuadorian Amazon. 

The Amazon Biocorridor Program is an initiative focused on the conservation and sustainable use of the Amazon Rainforest's biodiversity. The program involves establishing a series of interconnected protected areas, called "biocorridors," which are designed to safeguard ecosystems, facilitate species movement, and ensure the long-term health of the rainforest. These corridors are intended to reduce the effects of deforestation and habitat fragmentation by linking protected areas across borders.

With the the debt conversion, the Amazon Biocorridor Program aims to improve the management of 4.6 million hectares of existing protected areas and protect an additional 1.8 million hectares of forests and wetlands. This model will also protect 18,000 kilometers of rivers, bolster climate resilience, and support human well-being. This new debt conversion, the first of its kind in the Amazon region, will provide a sustainable funding stream to support the implementation of the Amazon Biocorridor Program.

Most of the conservation funding unlocked by the debt conversion will be disbursed through grants from a new independent conservation trust fund, Fondo del Biocorredor Amazónico, Fondo BCA (Amazon Biocorridor Fund, BCA Fund). The BCA Fund will focus on the Ecuadorian Amazon and will be run by a local board of directors that includes representatives from the government, indigenous groups, local communities, academia, the finance industry, sustainable development organizations and private enterprise.

"The Government of Ecuador reaffirms its commitment to conserving the Amazon region by implementing innovative financing mechanisms. As part of a responsible fiscal management framework, we have carried out a financing operation that not only alleviates the burden of public debt but also ensures sustainable resources for the development of the BCA. This sustainable financing model exemplifies our leadership in addressing environmental and climate challenges for the benefit of current and future generations. Thanks to the coordinated efforts of an inter-institutional team, with the guidance of Enosis Capital as the Technical Advisor and Financial Structuring Agent of the Republic and the Global Green Growth Institute, we have secured credit benefits that link our public finances to concrete actions for the preservation of this invaluable ecosystem," said Juan Carlos Vega, Ecuador’s Minister of Economy and Finance.