Ecuador frees cash for Galapagos conservation with $1.6 bln bond buyback

Credit Suisse has bought up $1.6 billion worth of Ecuador's bonds, freeing up cash for conservation of the country's unique Galápagos Islands in what is set to be the biggest debt-for-nature swap ever struck.

Credit Suisse has bought up $1.6 billion worth of Ecuador's bonds, freeing up cash for conservation of the country's unique Galápagos Islands in what is set to be the biggest debt-for-nature swap ever struck. The plans sees three of Ecuador's main government bonds, which have slumped in value this year due to a domestic political crisis, being bought at deep discount with the savings going into one of the world's most precious ecosystems and the inspiration for Charles Darwin's Theory of Evolution.

Thursday's buyback saw just over $1 billion in face value of Ecuador's 2035 bond repurchased at 38.5 cents on the dollar, $202 million of a 2030 note bought at 53.25 cents and $420 million of a 2040 bond bought at 35.5 cents, Credit Suisse said. Credit Suisse had originally offered to spend up to $800 million, but the discounted price of the bonds and the amounts actually sold by bondholders meant only $644 million was used.

Moody's on Friday gave an investment-grade Aa2 rating to a $656 million "Galápagos Bond" maturing in 2041. Proceeds will be used to make a loan to Ecuador insured by the U.S. International Development Finance Corporation and with an $85 million guarantee from the Inter-American Development Bank that, if needed, could cover the first six quarterly interest coupons. The high-grade Aa2 rating compares with Ecuador's 'junk' grade Caa3 credit score.

The buyback comes against a backdrop of political turmoil in Ecuador, with the National Assembly in the middle of an impeachment process against President Guillermo Lasso for alleged embezzlement, an allegation Lasso denies. UNIQUE SPECIES

The volcanic Galápagos islands lie 600 miles (970 km) off Ecuador's coast. Because of their remoteness, many of the species that live there, including giant tortoises, marine iguanas and Darwin's finches are found nowhere else in the world. A number of bondholders have also given the buyback deal the thumbs-up, both for its conservation benefits and as a savvy way for the country, which has defaulted a number of times in recent decades, to do some repair work on its finances.

"Overall, I think it is positive," said Carl Ross, a veteran of emerging market debt restructurings, including past ones by Ecuador, at asset manager GMO. "The bonds have been traded at very depressed prices, so why not take advantage and do some liability management. It's a good idea for a country that is trying to regain credibility with the market."

Tellimer analyst Stuart Culverhouse estimated that more of Ecuador's bonds could have been bought. "The impact in terms of lower debt service and lower debt stock is relatively mild," Culverhouse said, calculating it was shaving around 10% off the debt stock, which had been just over $16.5 billion beforehand and would now drop to $14.9 billion.