"Debt against nature": Coface provides reinsurance in largest deal in history!
Ecuador, a country rich in biodiversity, has signed an agreement to reduce its debt while allocating several hundred million dollars to the marine conservation of the Galapagos Islands.
Through the U.S. International Development Finance Corporation, Coface participated in the reinsurance of the financial package, which is the largest debt swap to benefit the preservation of biodiversity.
The Galapagos Marine Reserve is one of the largest and most biologically diverse marine protected areas in the world. In 2022, the Ecuadorian government created the Hermandad Marine Reserve to improve marine conservation. The debt conversion and related conservation activities will enable Ecuador to meet the Global Oceans Alliance's commitment to protect 30% of the world's marine territory by 2030.
The purpose of the Galapagos Marine Bond is to finance Ecuador's debt conversion by exchanging $1.628 billion of Ecuador's international bonds for a loan of $656 million. This historic agreement will save Ecuador around $1 billion over the next 17 years. At the heart of the bond is $18 million in annual funding for the Galapagos Islands. Over the next 20 years, these funds will be used to protect endangered species and other aspects of this global ecological treasure. The U.S. International Development Finance Corporation (DFC) is providing $656 million in political risk insurance (for the loan), and reinsurance for the project is being provided by a group of 11 private insurers, including Coface, to facilitate the project.
“This was the first debt-for-nature swap that Coface has participated in. We are looking to assist in more green deals in the future, providing critical support for socially and environmentally important programs,” underlines Phil Ward, Senior Account Manager for Financial Institutions for Coface North America.
After several months of discussions on the structure and wording of this specific policy, Coface was able to confirm its support for the transaction for a period of 10 years. "This is the result of excellent collaboration between Coface's various departments,"says Guillaume Ogier, Head of Single Risk Insurance for Coface UK & Ireland.
An innovative transaction thanks to Single Risk insurance
Coface's Single Risk solutions are hedging products that protect project owners, developers or financiers against long-term commercial and political risks. In 2022, Coface doubled the envelope dedicated to supporting ESG projects worldwide between now and 2025 by deploying more Single Risk insurance solutions. The aim is to strengthen our support for the financing and implementation of projects led by companies, banks and multilateral institutions that meet specific ESG criteria in sectors such as renewable energies, energy efficiency, transport, water treatment, health, education and microfinance.
According to Scott Nathan, CEO of the DFC, quoted on the organisation's website," This transaction is a huge accomplishment and achieves benefits on multiple levels. Ecuador gets increased economic stability and the world benefits from the conservation of a critical ecosystem. DFC is proud to have worked with our partners [Editor's note: including Coface] to help make this innovative transaction happen. The Galápagos Marine Bond will generate enormous benefits for the people of Ecuador by reducing the country’s national debt and providing significant resources to protect the Galápagos Islands and its extraordinary biological diversity for years to come. DFC’s $656 million in political risk insurance investment for this transaction also underscores the power and flexibility of our political risk insurance tool to mobilize private sector capital towards investments with tangible economic and environmental benefits.”