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Clifford Chance advises Credit Suisse on Largest Debt Conversion for Marine Conservation to Protect the Galápagos

9 May 2023

Clifford Chance advises Credit Suisse on Largest Debt Conversion for Marine Conservation to Protect the Galápagos

International law firm Clifford Chance has advised Credit Suisse on a $656 million Galápagos marine conservation-linked bond (Galápagos Marine Bond), structured by Credit Suisse and also involving the Republic of Ecuador, U.S. International Development Finance Corporation (DFC), the Inter-American Development Bank (IADB), Oceans Finance Company and the Pew Bertarelli Ocean Legacy.

The Galápagos Marine Bond was used to finance a debt conversion for Ecuador, exchanging $1.628 billion of Ecuador’s international bonds for a $656 million loan (the Loan). DFC provided $656 million in political risk insurance for the Loan, while IADB provided an $85 million guarantee. The transaction has generated considerable fiscal savings for the Republic and a reduction in its debt.

The debt conversion will generate an estimated $323 million for marine conservation in the Galápagos Islands over the next 18.5 years, including approximately $12.05 million of new funding annually and around $5.41 million annually, on average, to capitalise an endowment for the Galápagos Life Fund (GLF). The endowment, which will be a source of permanent funding for the GLF to continue supporting marine conservation projects beyond the term of the transaction, is estimated to grow to more than $227 million by 2041. Combined, the debt conversion and endowment will generate more than $450 million for marine conservation in the Galápagos Islands.

The marine conservation objectives include enhancing the management and conservation of the recently created marine reserve in the exclusive economic zone of Ecuador surrounding the Galápagos known as "Hermandad Marine Reserve" (Reserva Marina Hermandad) and the growth of the natural capital of the Galápagos Islands and their marine ecosystems. Within the Hermandad Marine Reserve, an area of 30,000 kilometers2 will be maintained in which no extractive activities will be allowed so that areas of critical oceanic ecosystems, migratory routes and feeding zones of threatened marine species are conserved.

Clifford Chance advised on all elements of the debt conversion, including the third party tender offer in respect of Ecuador’s international bonds that were exchanged, the execution of the Loan, the offering of the Galápagos Marine Bond and the legal aspects of the marine conservation objectives of the transaction. The successful execution of the deal adds to Clifford Chance's established track record of advising clients on cutting edge ESG and blended finance transactions for sovereigns, as well as its extensive experience working on financings involving Ecuador.

Clifford Chance partner Deborah Zandstra, who led on the transaction, said "It has been a privilege to have advised Credit Suisse on this seminal debt conversion transaction. This innovative use of debt conversion and blended finance techniques will generate considerable fiscal savings for the Republic of Ecuador and substantial funds for marine conservation in the Galápagos Islands and the Hermandad Marine Reserve, and builds on our longstanding partnerships with both Credit Suisse and the Republic of Ecuador on transactions of this type."

Deborah Zandstra was assisted by a core team comprising of partners Jon Zonis and Jessica Littlewood, counsel Radoslav Lolov, senior associates Azam Taiyeb and Sophie Wilkinson, and associates James Kelton, Amy Hillier, Grace Cameron and Brianna Jones Rich.

The team were further assisted by lawyers across the Clifford Chance network, including Audley Sheppard KC, Avrohom Gelber, Gareth Old, Andrew Young, Andrés Berry, Tom Dyer and legal project manager Béatrice Blois.