J.P. Morgan played a key part in El Salvador’s innovative debt-for-nature transaction — the first of its kind in the world to support river conservation — focused on the Lempa River watershed.
The Lempa River supplies drinking water, supports industry and is critical for hydropower generation and irrigation in El Salvador. The river also supports diverse ecosystems that represent a large portion of the country’s environmental heritage.
In a debt-for-nature transaction, countries can repurchase existing debt on better terms and use the savings for the benefit of the natural environment. Projects funded by savings from El Salvador’s debt-for-nature transaction are expected to improve water quality, quantity and reliability; strengthen climate resilience; protect the watershed’s natural ecosystem; and mitigate water security risk in the region.
JPMorgan Chase acted as sole arranger and lender for a $1 billion loan, and J.P. Morgan acted as sole dealer manager for El Salvador’s $1.031 billion tender offer to buy back its outstanding bonds at a discount to their issuance value.
El Salvador has stated that the transaction will generate over $352 million in savings, of which the majority will be allocated to the Rio Lempa Conservation and Restoration Program (the “Program”) — the largest ever commitment to conservation via a debt-for-nature transaction to date. Specifically, El Salvador has committed to allocating $350 million over 20 years to the Program, with $200 million directly funding conservation efforts and $150 million establishing an endowment for future projects.
The transaction marks the first time a country has embedded river conservation into a debt-for-nature transaction and is part of the Central American country’s efforts to bring down its debt burden and protect its natural environment.
Supporting sovereign debt-for-nature transactions is one of the many ways the firm is working to promote sustainable development and support its clients in preserving biodiversity. Debt-for-nature transactions help to boost environmental conservation by providing emerging markets with a way to allocate funds for protecting and preserving natural habitats while generating savings for their economies.
“El Salvador has effectively brought parties together to create a structure that combines traditional and innovative capital market technologies aimed at achieving execution certainty and cost savings,” said Robert Cozzari, co-head of Latin America Sales at J.P. Morgan.
The U.S. International Development Finance Corporation provided $1 billion in political risk insurance and the Development Bank of Latin America and the Caribbean provided a $200 million standby letter of credit. The political risk insurance and letter of credit provided credit enhancements that supported the transaction.
“As more countries explore similar strategies, the potential for positive environmental impact grows, offering a path forward in the fight against climate change.”
Lisandro Miguens
Head of Debt Capital Markets for Latin America, J.P. Morgan
El Salvador’s debt-for-nature transaction provides an example of potential options for other nations facing similar challenges. “By leveraging financial innovation and international cooperation, countries can address environmental issues while alleviating economic pressures,” said Lisandro Miguens, head of Debt Capital Markets for Latin America at J.P. Morgan.
“As more countries explore similar strategies, the potential for positive environmental impact grows, offering a path forward in the fight against climate change,” Miguens added.
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