The U.S. International Development Finance Corporation (DFC), the Government of El Salvador, the Development Bank of Latin America and the Caribbean (CAF), Catholic Relief Services (CRS), the Environmental Investment Fund of El Salvador (FIAES), and ArtCap Strategies today announced the financial closing (agreement) of $1,000 million for the repurchase of $1,031 million of El Salvador's outstanding bonds at a discount to their face value. All savings generated by the transaction will be allocated, over time, to support conservation, water security and ecosystem restoration in the Lempa River basin. JPMorgan Chase Bank, N.A. acted as sole arranger of the loan and J.P. Morgan Securities LLC acted as dealer manager for the repurchase of the El Salvador bonds.
DFC, the U.S. government's international development bank, is providing $1 billion in political risk insurance (PRI), while CAF is providing a $200 million standby letter of credit (SBLC). The combination of DFC's PRI and CAF's SBLC strengthens the credit risk supporting the transaction, which in turn catalyzes additional investment in ecosystem conservation and restoration efforts in El Salvador's Lempa River basin. ArtCap Strategies acted as financial advisor and global coordinator of the transaction.
The Lempa River is one of the longest in Central America and plays an important role in the well-being of El Salvador's cities, communities, and economy by providing clean drinking water, as well as supporting industry, hydroelectric generation, and irrigation. It also supports diverse ecosystems that represent a large part of the country's environmental heritage. Projects financed by transaction savings are expected to improve water quality, quantity, and reliability, strengthen climate resilience, protect the basin's natural ecosystem, and mitigate water security risks in the region.
Through this transaction, the Government of El Salvador will realize more than $352 million in savings over the maturity of the debt through a combination of immediate nominal savings and substantial reductions in debt service costs. Of these savings, $350 million will be applied to the Lempa River Conservation and Restoration Program (the "Program") over the next 20 years, in support of national conservation efforts in the Lempa River watershed. Specifically, $200 million, or an average of $9.75 million annually over 20 years, will directly fund the Program, while $150 million, or approximately $7 million annually, will fund a trust. Trust funds will be invested and are intended to become a source of ongoing funding for the Program beyond 2044. This $350 million allocation represents the largest conservation financing commitment a country has ever made in a debt conversion transaction.
CRS and FIAES will jointly manage the Program and collaborate with leading government water and environment agencies to improve water security and health in the watershed, promote biodiversity conservation, stimulate economic development through regenerative agriculture, and strengthen planning and management capacities in the Lempa River basin. The Program will provide grants to nongovernmental organizations operating in El Salvador in support of these goals, with the first grants expected to be disbursed in 2025. The Program will be administered by a seven-member Board of Directors that includes a representative from the Government of El Salvador, one from the United States Agency for International Development (USAID), and five non-governmental representatives.
In addition, the Government of El Salvador has committed to: (i) establish an entity in the area to oversee the conservation and restoration of the Lempa River basin; (ii) approve a National Plan for Integrated Water Resources; (iii) establish a water resources data monitoring system for the Lempa River basin; (iv) develop protocols for the issuance of water use permits; (v) establish a mechanism for public feedback and complaints for violations of the National Water Resources Law and the Environmental Law; (vi) contribute to the decision-making process by developing standards for calculating costs related to drinking water and sanitation services; and (vii) declare 75,000 hectares of protected aquifer recharge zones throughout the basin by 2044.
White & Case LLP acted as legal counsel to the Republic of El Salvador.
"This debt conversion represents the most ambitious and impactful environmental action in El Salvador's history. Not only does it reaffirm this government's commitment to economic growth, but it also allows us to achieve that development while preserving one of our most precious natural resources: the Lempa River basin. With the support of international institutions, we are executing the largest financial operation of its kind to date. This debt conversion project promotes sustainable development for our communities, strengthens our water security and protects our ecosystems to ensure the well-being of this and future generations. With this debt conversion, we hope to transform El Salvador's environmental and economic future": Nayib Bukele, El Salvador's President.
"Since its inception, DFC has been a pioneer in the field of debt conversions. Today's announcement introduces the world's first debt conversion for watershed conservation and water security. This transaction will protect critical resources while supporting the Salvadoran economy and promoting the growth of a dynamic private sector that will generate more opportunities for Salvadorans to find employment in their communities. DFC is committed to continuing to leverage our unique financial tools in innovative ways in our development priorities around the world": Scott Nathan, CEO of DFC.
"At CAF, we are committed to becoming the green bank of Latin America and the Caribbean. Therefore, we are investing $25 billion by 2026 to fund environmental, climate change, and biodiversity initiatives, such as the one we are announcing today in partnership with the Government of El Salvador, DFC, CRS, and FIAES. This historic financing demonstrates that, through joint efforts, we can advance innovative financial mechanisms that accelerate sustainable development," Sergio Díaz-Granados, CAF's Executive President.
"CRS is excited to be part of this transformative program in El Salvador, which sets a new standard for the scale and long-term financing needed to restore and protect essential water resources, ensuring their conservation for present and future generations. This Program was made possible thanks to the bold leadership and collective action of a dynamic and diverse team": Carla Fajardo, Regional Director for Latin America and the Caribbean for Catholic Relief Services.
"FIAES is pleased to participate in the Lempa River Conservation and Restoration Program, acting as a strategic partner of the Government of El Salvador and the Government of the United States of America, as fund manager and co-manager of the program. The Lempa River basin is a valuable natural resource for our country, since it covers 49 percent of the territory and supplies 68 percent of the national water needs; therefore, their preservation is essential to guarantee the sustainability of their ecosystem services,": Jorge Oviedo, Executive Director of FIAES.
"ArtCap is proud to have led the coordination of this historic transaction, convening public and private stakeholders to help develop a comprehensive conservation and financial strategy. This program will provide an important source of long-term financing for projects focused on the Lempa River basin. By acting as a catalyst for the private sector, ArtCap was able to set a new precedent for collaboration between public and private stakeholders that helped achieve a program of impressive scale. We hope that the success of this transaction will encourage more innovation in conservation financing": Antonio Navarro, Managing Partner of ArtCap Strategies.
About DFC:
The U.S. International Development Finance Corporation (DFC) partners with the private sector to fund solutions to the most critical challenges facing the developing world today. We invest in sectors such as energy, healthcare, infrastructure, agriculture, and small business financial services. DFC's investments adhere to high standards and respect the environment, human rights, and workers' rights.
About CAF:
CAF – Development Bank of Latin America and the Caribbean – has the mission of promoting sustainable development and regional integration by financing projects in the public and private sectors, providing technical cooperation and offering other specialized services. Founded in 1970 and currently composed of 21 countries – 19 in Latin America and the Caribbean, along with Spain and Portugal – and 13 private banks, it is one of the main sources of multilateral financing and an important generator of knowledge for the region.
About Catholic Relief Services:
Catholic Relief Services is the official international humanitarian agency of the Catholic community in the United States. The agency alleviates suffering and provides assistance to people in need in more than 100 countries, regardless of race, religion or nationality. CRS works at the intersection of sustainable agriculture, watershed management, and water supply to support governments, partners, communities, and all stakeholders in providing truly sustainable solutions that increase production, improve water for human health, and mitigate climate change. CRS has worked in El Salvador for more than 50 years, supporting a network of local partners.
About FIAES:
FIAES was launched in 1993 as a Conservation Trust Fund as a result of a debt-for-nature swap between the Government of the United States of America and the Government of El Salvador to support the restoration and conservation of natural resources in El Salvador. FIAES manages multiple funds, including several debt-for-nature swaps, environmental compensation funds from the Government of El Salvador, and several conservation grants from international organizations. Over the past 31 years, FIAES has invested more than $90 million in the conservation and restoration of marine and terrestrial coastal ecosystems.
About ArtCap Strategies:
ArtCap Strategies is a private credit fund and a leading financial advisory firm that specializes in sustainable and innovative financing for public and private sector clients (among other strategies). With a focus on structuring and investing in deals that address global challenges such as climate resilience, water security, and sustainable development, ArtCap works closely with governments, multilateral institutions, and private investors to create impactful financial strategies. ArtCap's expertise lies in coordinating complex transactions that not only generate economic value, but also drive environmental and social progress, setting new standards in responsible finance.
This announcement may contain statements based on forward-looking statements. Forward-looking statements are statements that are not historical facts. These statements are based on El Salvador's current plans, estimates, assumptions and projections. Therefore, you should not place undue trust in them.
Forward-looking statements are only valid as of the date they are made, and El Salvador undertakes no obligation to update them in light of new information or future events.
Comments