El Salvador took advantage of a record sale of government debt in September to refinance its foreign debt through a special purpose vehicle through JPMorgan Chase. By tendering its entire $7.2 billion foreign debt, the country eventually agreed to buy back $1.03 billion, or 14% of its bonds maturing between 2027 and 2052.
Bonds with earlier maturities are more popular for resale by bondholders. The platform provided by JPMorgan Chase represents a debt-for-nature swap on a significant scale.
“This debt conversion represents the most ambitious and impactful environmental action in El Salvador’s history,” said President Nayib Bukele. “With the support of international parties, we are implementing the largest debt conversion transaction to date.”
This is the fourth debt buyback offer El Salvador has made since 2022, which began with a liquidity crisis. S&P rated the country’s outlook at B- with a stable outlook and called the debt swap an “opportunistic move.”
In September, corporations raced to secure financing ahead of potential market turmoil, with more than 1,225 bonds worth $600 billion sold during the month. The move caught many market analysts by surprise, with many blaming the November US election and recession fears that surfaced in August.
The refinancing will save $352 million in debt service, according to the El Salvadoran government. The U.S. International Development Finance Corporation provided $1 billion in political risk insurance, and the Development Bank of Latin America and the Caribbean added $200 million in standby letters of credit.
Robert Cozzari, co-head of Latin American markets at JPMorgan, told Bloomberg that El Salvador has brought “all parties” together for a capital markets initiative that will provide execution certainty and cost savings.
Costs saved through the buyback will go towards preserving and restoring the Lempa River Basin, which is the largest in the country and provides water security to El Salvador, Guatemala and Honduras. Under the agreement, the El Salvadoran government will create an organization to oversee conservation, establish a water data monitoring service and declare 75,000 hectares of protected aquifer recharge zones by 2044.