The Nature Conservancy and the Inter-American Development Bank offer repayment guarantee

In a game-changing transaction, Barbados has struck a deal converting US$150 million of its sovereign bonds into cheaper debt with plans to use the savings to protect its ocean.

The Mia Mottley government, with the help of United States charity, The Nature Conservancy (TNC) and the Inter-American Development Bank (IDB) is buying back a portion of its US$531-million bond due in 2029, replacing it with lower-cost debt that comes with repayment guarantees.

As part of the deal, Barbados is also buying back a portion of its eight per cent local currency notes due 2042, which should free up about US$50 million over the next 15 years. The savings will be used to expand official protections in Barbados’ coral reefs and other ocean environments.

More details of the transaction

For Barbados, the transaction will enable the government to repurchase more than US$70 million of its 6.5 per cent 2029 US dollar bonds at a discount of 92.25 cents on the dollar. The deal will require Barbados, which has virtually no protected marine areas, to eventually protect 30 per cent 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.

“This is a game changer,” Prime Minister Mia Mottley remarked in a statement.

“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.”

Spurring into action

The statement quoted Mottley as saying: “While we (Barbados) 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… . 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.”

The island has been hammered in recent years as the COVID-19 pandemic kept visitors at home, which caused its economy to contract by 18 per cent two years ago. Climate change has also had a major impact on the island.

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 US dollar.

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