Political Risk Insurance to Support a marine conservation-linked bond in Galapagos

Area characterisation:

Marine

Objective:

De-risk debt swap to fund marine conservation

Start/end date:

1 January 2023

Financing:

Public-Private-Partnership

Potential impacts/benefits:

$1.126B in sovereign debt savings
$323M channelled to marine conservation over 18.5 years
$450M permanent endowment by 2041
Long-term funding for Galápagos marine protected areas

Actions:

Structured a US$656m marine conservation-linked bond and debt conversion, backed by DFC political risk insurance and an IDB guarantee with reinsurance from 11 private insurers, channelling savings into Galapagos marine conservation and a permanent endowment.

Organisations:

Government of Ecuador, the U.S. International Development Finance Corporation (DFC), Inter-American Development Bank (IDB), Credit Suisse, Oceans Finance Company (OFC), Pew Bertarelli Ocean Legacy, AXA XL, Fidelis MGU, Chubb Global Markets, Sovereign Risk Insurance Ltd, Mosaic, Coface, Swiss Re, MSAmlin

Contacts:

Case study referred by UNEP FI. For more information, please contact: info@naturance.eu.

This is a US$ 656 million Galápagos marine conservation-linked bond (Galápagos Marine Bond), arranged and structured by Credit Suisse in partnership with the Government of Ecuador, the U.S. International Development Finance Corporation (DFC), Inter-American Development Bank (IDB), Oceans Finance Company (OFC), and Pew Bertarelli Ocean Legacy. The bond financed a debt conversion for Ecuador, exchanging US$ 1.628 billion of the country's international bonds for a US$ 656 million loan, with DFC providing US$ 656 million in political risk insurance and IDB supplying an US$ 85 million guarantee. A consortium of 11 private insurers, including Swiss Re, provides over fifty percent reinsurance to support the transaction. Ecuador stands to realize more than US$ 1.126 billion in lifetime savings through reduced debt service costs.
The conversion is estimated to channel US$ 323 million toward marine conservation in the Galápagos Islands over 18.5 years, comprising roughly US$ 12.05 million in new annual funding and approximately US$ 5.41 million per year on average to capitalize an endowment for the Galapagos Life Fund (GLF). This endowment is projected to exceed US$ 227 million by 2041, serving as a permanent funding source for marine conservation beyond the transaction's term — bringing the total endowment to US$ 450 million for marine conservation.