The Government of Barbados announced today that it has closed a landmark debt conversion that will fund a domestic conservation fund and an endowment trust supporting durable large-scale conservation of the country’s fragile marine environment and promotion of the sustainable blue economy for generations. The Barbados debt conversion is the first of its kind to make use of an innovative and efficient structure that maximises the savings generated for marine conservation purposes.
As part of the transaction, the Government has today repurchased US$77.6 million in aggregate principal amount of the Government of Barbados’s 6.500% Notes due 2029 by means of a modified Dutch auction that was launched on 9 September 2022 and expired on 16 September 2022. The clearing price of the auction was set at US$92.25 per US$100 in principal amount of the Notes accepted for purchase. In parallel, the Government has today prepaid US$72.9 millionequivalent of its Barbados dollar-denominated Series E 8% bonds due 2043.
Both operations were funded through a dual currency US$146,518,800-equivalent term loan facility, or blue loan, that benefits from guarantees of up to US$150 million from the InterAmerican Development Bank (“IDB”) and The Nature Conservancy (“TNC”). Credit Suisse arranged the blue bonds that were issued to fund the US dollar portion of the blue loan, whilst CIBC FirstCaribbean arranged the local currency portion of the blue loan. The IDB guarantee covers US$100 million of the blue loan with the TNC guarantee covering US$50 million.
The transaction is expected to free up almost US$50 million over 15 years. The proceeds will fund critical marine conservation work and the sustainable management of a material portion of Barbados’s marine assets, largely as a result of the interest rate differential between the repurchased debt and the blue loan.
The Government has entered into a conservation funding agreement with TNC that requires the Government to redirect interest savings generated by the transaction to the Barbados Environmental Sustainability Fund Inc. (“BESF”) and the endowment trust. The BESF is an independent entity that is overseen by a board of directors comprising representatives from the Government, TNC, University of West Indies (UWI), civil society, and the private sector.
BESF will build on the capital being made available by the operation announced today and will use its resources to fund a series of key marine conservation projects, administer the endowment fund, and commit to protect and sustainably manage up to 30% of Barbados’s Exclusive Economic Zone and Territorial Sea of more than 185,000 square kilometres. The endowment fund will ensure investments in marine conservation projects in Barbados can continue on a long-term basis after the 15-year lifecycle of the transaction is complete.
The Government estimates that the innovative architecture utilised in the transaction has made the Barbados debt conversion for nature the most efficient of its type to date, in terms of the cash flow savings generated for marine conservation, relative to the amount of debt being treated.
The transaction is also ground-breaking in the sense that the blue loan contains not only natural disaster clauses of the type already found in the majority of Barbados’s public indebtedness, but also contractual provisions that allow for limited deferrals in the event of a pandemic event meeting certain predefined criteria.
The inclusion of these ‘pandemic’ clauses in the financing instruments relating to the transaction mark the first time that natural disaster clauses have been used in a primary market issuance by a sovereign, and, as far as the Government is aware, the first time that pandemic clauses have been utilised by a sovereign in this manner in any type of financing.
Commenting on the closing of the transaction, Prime Minister and Minister of Finance, the Hon. Mia Amor Mottley Q.C., M.P. said “We are delighted to see the successful execution of our debt conversion for nature. Recently, Barbados has found itself at the front line of both the global pandemic and the climate crisis. Our response has been to find innovative ways to strengthen our resilience and to address the challenges that face us, not least the climate crisis. This operation is the culmination of a lot of hard work, and of our determination to support our precious and irreplaceable marine environment which must equally be sustainably developed and managed. I thank the IDB, TNC, lenders, bondholders, and all other parties that have come together to make this transaction possible.”
Hon. Ryan Straughn M.P., Minister in the Ministry of Finance and Economic Affairs added “This transaction allows the Government to create some additional fiscal space by diverting existing debt service to address some of the critical adaptation and mitigation challenges created by the climate crisis.”
The sustainable development and management of the Blue Economy will be at the centre of the work of the BESF, the local organization that has been set up in partnership with TNC and UWI to carry out the work need for Barbados to achieve its environmental commitments. We thank the IDB and TNC for their willingness to partner with the Government of Barbados in what is a show of confidence in our ability to find innovative solutions to benefit the people of Barbados.”
Hon. Adrian Forde M.P., Minister of Environment and National Beautification with responsibility for the Blue and Green Economy lauds the transaction, “Given Barbados’ strong commitment to environmental sustainability as expressed in our Nationally Determined Contribution, we look forward to the commencement of the work for the development of the marine spatial plan, which we feel will inspire young people in Barbados to sustainably manage our marine resources.”
White Oak Advisory Limited acted as financial advisor to the Government of Barbados in all aspects of the transaction. Cleary Gottlieb Steen & Hamilton LLP acted as legal advisor to the Government of Barbados.