Bahamas debt swap unlocks $124 million for ocean protection

By Virginia Furness

The Bahamas has unlocked more than $120 million to fund the conservation and management of its oceans and mangroves with a debt swap financed by Standard Chartered and backed by the private sector.

By spending $215.7 million to buy back Eurobonds and repurchasing an $81 million commercial bank loan using a lower-cost $300 million loan from Standard Chartered, the Bahamas is able to redeploy the interest and principle payment savings to fund wide-reaching ocean conversation projects.

So-called debt for nature swaps are emerging as an important tool to help countries achieve their conservation and climate goals and close the $942 billion nature finance gap BloombergNEF estimates is needed to restore and maintain biodiversity globally.

The swap comes after nations at a UN biodiversity summit in Colombia in October failed to devise a plan for how countries would reach the ambitious global goals for mobilizing billions of dollars for nature conservation. Rich nations signalled an unwillingness to pay more, instead looking for the private sector to fill the gap.

"The nature bonds programme is one of the few mechanisms that can drive financing at scale towards climate and nature in the global south," said Slav Gatchev, head of sustainable debt at The Nature Conservancy, which designed the deal and provides conservation support to the Bahamas.

The Bahamas' unique archipelago of low lying islands, coral islets and cays make it and the people who live there highly vulnerable to climate impacts. The country is still feeling the effects after Hurricane Dorian left widespread devastation in 2019.

The Bahamas deal is the first new generation debt swap to involve guarantees and insurance from the private sector with Builders Vision, an impact investor, putting up a $70 million credit guarantee and Axa XL providing $30 million insurance.

The deal enhancements, along with a $200 million partial credit guarantee from the Inter-American Development Bank (IDB), enabled Standard Charted to price its 15-year loan at 4.7%, a coupon the bank said was roughly aligned to the cost of new IDB debt.

"The asset class is not only scaling but developing," said Dennis Eisele, head of global credit market financing for Latin America at Standard Chartered.

"Builders Vision and AXA demonstrate there is an expanded pool of capital for these deals."

Eisele said the bank has no immediate plans to sell on the loan.

At their simplest, debt for nature swaps see part of a country's debt bought up by a bank or specialist investor and replaced, usually helped by a credit guarantee, with a new lower-cost "nature" bond or loan.

Funding from the Bahamas swap will go towards restoring mangroves damaged by the hurricane, managing the archipelago's 6.8 million hectares of marine protected areas and supporting the build out of a new project to protect the entire Bahamian ocean area.