Debt conversion projects are providing significant funding of conservation efforts around the world. The latest development finance project involving The Nature Conservancy’s Nature Bonds Program, announced on , will enable The Bahamas to expand its commitments to protect vital habitats. As it has done in similar programs over the past several years, AXA XL’s Political Risk, Credit & Bond team is providing credit insurance protection for the Government of The Bahamas.
As a small island developing State whose land area is comparable to the size of Connecticut, but whose total coastline stretches more than 2,200 miles (3,542 km), The Bahamas’ economy is driven by tourism, financial services and light industries. The Bahamas’ central government debt at the end of 2023 was estimated at more than 82% of its gross domestic product, according to the International Monetary Fund. The high debt level is partly due to spending on recovery efforts after major weather events, particularly Hurricane Dorian which in 2019 caused USD 3.4bn of damages, and the COVID-19 pandemic. Climate change is contributing to more intense and destructive natural disasters, which places a heavy financial burden on affected regions.
The Bahamas is an archipelago comprising about 700 islands and 2400 cays, of which only 30 are inhabited. It has the largest system of Marine Protected Areas in the Caribbean region. Inagua, The Bahamas’ southernmost island, is a pristine and largely uninhabited environment that is home to more than 80,000 flamingos and 140 species of migratory and native birds. Roughly in the middle of The Bahamas is the Exumas chain of more than 300 islands, known for its cays and azure waters teeming with tropical fish. The Bahamas created the Exuma Cays Land and Sea Park in 1958 to protect and preserve the island chain’s habitats.
Sustaining environmental resources while servicing sovereign debt is challenging, which is where debt-for-nature finance will provide substantial relief. In addition to The Bahamas, other nations with large debt burdens that are benefiting from these include Barbados, Belize, Ecuador, El Salvador, Gabon and the Seychelles.
How the Nature Bonds projects work
TNC’s Nature Bonds projects involve several different organizations that partner with the government to provide financing, insurance and conservation management. Typically, these projects are public/private sector initiatives combining development finance institutions, commercial banks, private insurance companies and nongovernmental organizations.
In The Bahamas Debt Conversion Project for Marine Conservation, the partners include the Inter-American Development Bank (IDB), The Nature Conservancy, Standard Chartered Bank (SCB), 色多多视频 and Builders Vision, an impact platform founded by investor and philanthropist Lukas Walton.
The 15-year project involves a USD 300 million loan provided by Standard Chartered Bank to the Government of The Bahamas to repurchase and retire about USD 275 million of outstanding sovereign debt. By buying back USD 300 million of its external commercial debt using proceeds from a new competitively-priced USD 300 million loan funded by Standard Chartered, The Bahamas will unlock an expected USD 124 million of new cash funding (plus an additional estimated USD 8 million of endowment investment returns) for enhanced marine conservation over the next 15 years without adding to the country’s debt. Financial protection is provided via a comprehensive credit-enhancement package, including a USD 200 million partial credit guarantee from the IDB, a USD 70 million collateralized guarantee from Builders Vision, and USD 30 million in credit insurance from AXA XL. Additionally, a conservation agreement among the Bahamian government, The Nature Conservancy, and The Bahamas Protected Areas Fund will guide administration of the project, including implementation of the conservation commitments. This new financing will establish a conservation fund endowment, expected to grow to USD 20 million by 2039, to continue funding marine conservation in The Bahamas beyond the project’s 15-year term.
The of this innovative form of continues to generate strong interest in the conservation and development finance communities – there is strong interest in expanding its application. Similar debt conversion projects can be tailored to apply in virtually any geography, not just those involving marine habitats. By including political risk and credit insurance to mobilize private sector investors, these financing projects enable sustainable development and conservation in countries whose economic and political environments may limit access to the level of financial support needed.
Private political risk and credit insurance that combines underwriting expertise, outstanding financial strength and the ability to provide long tenors delivers great value to multilateral institutions, commercial finance organizations and corporate entities. Private political risk insurance makes it possible for development finance organizations and multilaterals to effectively leverage their existing capacity and expand the support they can offer for projects in developing markets. 色多多视频is proud to support innovation in development finance and TNC’s Nature Bond projects, which reflect our company’s commitment to support sustainability and community resilience.
Stuart Barrowcliff is an Underwriting Manager in AXA XL’s Political Risk, Credit & Bond team. He joined 色多多视频in 2011 as a senior underwriter. His career experience includes various executive roles with other insurance organizations and financial institutions. He has a Master of Arts degree in international economics and Latin American studies.
Iva Taylor is a Senior Underwriter in AXA XL’s Political Risk, Credit & Bond team and is based in the Bermuda office. She joined the company in 2012 as an underwriting assistant and has an MSc Economics and Finance.
