Barbados swaps debt to protect the environment

Barbados is spinning U.S. $150 million of its sovereign bonds into cheaper debt with the help of a United States charity, with plans to use the savings to protect its ocean.

The government has struck a deal to buy back a portion of its U.S. $531 million bond due in 2029, replacing it with lower-cost debt that comes with repayment guarantees from The Nature Conservancy (TNC) and the Inter-American Development Bank (IDB).

As part of the deal, Barbados is also buying back a portion of its 8% local-currency notes due 2042.

It is a move that should free up about U.S. $50 million over the next 15 years – money that will be used to expand official protections in Barbados’ coral reefs and other ocean environments.

“This is a game changer,” Prime Minister Mia Mottley said in a statement. “The climate crisis is one that requires the urgent action of all.

“While we continue to push and wait on the international community at large to treat this situation as a matter of priority, we in Barbados have taken action of our own.”

She added: “Recently, Barbados has found itself at the front line of both the global pandemic and the climate crisis. Our response has been to find innovative ways to strengthen our resilience and to address the challenges that face us, not least the climate crisis.

“This operation is the culmination of a lot of hard work, and of our determination to support our precious and irreplaceable marine environment which must equally be sustainably developed and managed.”

For Barbados, the transaction enabled the government to repurchase more than U.S. $70 million of its 6.5% 2029 U.S. dollar bonds at a discount of 92.25 cents on the dollar.

The island has been hammered in recent years as the novel coronavirus (COVID-19) pandemic kept visitors at home, which caused its economy to contract by 18 per cent two years ago.

Even before COVID-19, the island was troubled. It had been struggling for years amid competition from less pricey Caribbean tourism destinations, crumbling infrastructure, and a currency pegged to the U.S. dollar.

After Mottley took office four years ago, she opted to restructure the island’s ballooning debt, which had reached over 175% of gross domestic product, according to government calculations.

Climate change has also had a major impact on the island.

The deal will require Barbados, which has virtually no protected marine areas, to eventually protect 30% of its coastal waters.

Barbados has committed to direct the interest savings towards a trust overseen by government officials, TNC, and private and non-government entities, that will distribute money based on local environmental issues.

An endowment will keep the trust funded for at least 15 years.

Credit Suisse Group AG and CIBC FirstCaribbean helped manage the transaction.