CC and Norton Rose on refinancing for Lempa river conservation

Clifford Chance has advised JP Morgan and Norton Rose Fulbright to the Development Bank of Latin America and the Caribbean (CAF) on a debt-for-nature transaction for USD $1.031 billion of outstanding El Salvador bonds, dedicating the savings to conservation, water security and ecosystem restoration efforts in the Lempa River basin.

This financing, which is the largest debt conversion transaction of its kind to date, will also stimulate economic development through regenerative agriculture.

The transaction was a joint effort of CAF, US International Development Finance Corporation (DFC), Catholic Relief Services (CRS), the Environmental Investment Fund of El Salvador (FIAES), ArtCap Strategies and the Government of El Salvador.

JP Morgan provided a $1 billion loan for the transaction. El Salvador used the proceeds of the transaction to repurchase more than $1 billion of its outstanding international bonds. DFC provided a $1 billion political risk insurance policy and CAF provided $200 million in standby letters of credit.

JPMorgan Chase Bank acted as sole arranger and lender of the loan and JP Morgan Securities acted as dealer manager in the tender offer for the El Salvador bonds.

Through this debt-for-nature transaction, El Salvador is expected to realise more than $352.5 million in lifetime savings. Of these savings, $350 million is expected to be applied to the Lempa River Conservation and Restoration Programme, which will be used in part to directly finance the Programme and in part to finance an endowment fund. The projects funded by the transaction savings are expected to improve water quality, quantity and reliability; strengthen climate resilience; protect the watershed’s natural ecosystem; and mitigate water security risk in the region. The endowment funds will be invested and are intended to become a continuous source of funding for the Programme beyond 2044.

The Lempa river basin, one of the largest in Central America, plays a key role in El Salvador’s ecosystem, supplying drinking water, generating hydropower and providing irrigation. The projects financed with the savings from the transaction will improve water quality, quantity and reliability, strengthen climate resilience, protect the basin’s natural ecosystem and mitigate water security risk in the region.

As part of the transaction, El Salvador has made a number of conservation commitments, including establishing a zonal organisation to oversee the conservation and restoration of the Lempa River basin and declaring 75,000 hectares of protected aquifer recharge areas throughout the basin by 2044.

CAF’s legal team included Rosalía Román-Urcuyo, José Daniel Jiménez, Mireylle Carrillo, Andrea Trocel, Hernán Vidal Baute and Tonia Orozco.

Clifford Chance’s team was led by Deborah Zandstra (pictured left), assisted by a core team comprising partner Jon Zonis, senior associates Sarah Cheng, Lucia Ferrer and James Kelton, and associates Alexandra Machado and Teninlanimi Owolabi, as well as fellows Gerry Nauta-Bluer, Hannah McLellan and Liam Woodward. The team was further assisted by lawyers from across the Clifford Chance network, including partners Jeff Berman, Jose Garcia Cueto, Avrohom Gelber, Darren Littlejohn and Andrew Young, counsel Andres Berry and Young Kim, and associates Tom Dyer, Isabel Hager-Johnson and David Rondon. Louise Keary and Andrew Whelan advised the agency parties and Daniel Winick and Xiaowen Zou advised the lender’s representative.

Norton Rose Fulbright’s team was led by Kenneth Hansen (pictured centre) and Micaela García-Ribeyro (pictured right) and also included Daniel Salomón Sotomayor.