January 15, 2025
(Bloomberg) -- Goldman Sachs Group Inc. pulled out of a $1 billion deal to help Ecuador refinance debt, due to internal risk-management controls.
The Wall Street bank exited the transaction — a debt-for-nature swap that was completed last month — after an internal compliance review identified a possible conflict of interest that the bank then flagged to the relevant parties, Ecuador’s finance ministry told Bloomberg in a written response to questions.
Goldman exited just days before the deal was completed, the ministry said, but “we appreciate that its legal and compliance processes identified an internal risk of interest and were communicated to the various participants in a timely manner.”
Though the move came as a surprise, Goldman has been a “strategic partner” for Ecuador for over 10 years and its withdrawal from the swap didn’t ultimately interfere with the country’s ability to complete the deal, the ministry said.
Goldman’s decision doesn’t reflect the bank’s relationship with Ecuador or ambitions around debt-for-nature swaps in general, according to a person familiar with the matter who asked not to be identified discussing private deliberations.
A spokesperson for Goldman Sachs declined to comment.
The deal, which was designed to generate funds to protect part of the Amazon rainforest, was completed by Bank of America Corp. as the sole commercial bank.
BofA “was able to absorb part of the market risk” associated with the transaction after Goldman decided to exit, Ecuador’s finance ministry said. So working with two banks “mitigated this type of risk,” it said.
A spokesperson for BofA declined to comment.
It’s the latest in a string of similar swaps in which junk-rated issuers seek to reduce their debt costs and put savings toward environmental conservation. The transactions are highly bespoke, and generally backed by guarantees provided by multilateral development banks to help keep borrower costs down.
Goldman said in 2023 it was exploring “a number” of such deals in Latin America. It had bid to participate in Ecuador’s first debt swap, people familiar with the matter said. That transaction, which was wrapped up in 2023, ended up being arranged by Credit Suisse. A spokesperson for Goldman declined to comment on the process.
The Details:
Ecuador’s latest swap allowed it to buy back some $1.5 billion of dollar-denominated bonds at a price ranging from 47.5 to 73 cents on the dollar.
The buyback was financed through a new 17-year $1 billion loan at an interest rate of 6.94% provided by Amazon Conservation DAC, which is a special purpose vehicle incorporated in Ireland.
That loan was in turn funded through the issuance of $1 billion of new bonds due 2042, at a coupon of 6.034%.
The Nature Conservancy, a nonprofit that regularly cooperates with governments to help design such swaps, selected bankers for the deal. A spokesperson for TNC declined to comment.
The deal was fully subscribed by investors.
While the market for debt-for-nature swaps remains small at roughly $4 billion, it’s expected to grow to at least $100 billion. Aside from BofA, banks that have completed deals include JPMorgan Chase & Co. and Standard Chartered Plc. Credit Suisse dominated the market until its takeover by UBS Group AG in 2023.
Goldman isn’t the only major bank to have recently retreated from a debt-for-nature swap. UBS stepped back from a deal in Barbados in the final stages of a transaction that was completed late last year. The Swiss bank had also been working on Ecuador’s latest swap, but pulled out of the transaction early in the process, people familiar with the matter said asking not to be identified discussing non-public information.
A spokesperson for UBS declined to comment.
Zurich-based UBS has since urged caution internally around how to label such transactions, Bloomberg reported in October.
Goldman introduced stricter internal standards a few years back to target what it describes as “significant and complex” transactions. Those changes followed its involvement in the 1MDB scandal in Malaysia, which in 2020 saw the bank entering into a multibillion-dollar settlement.
Some of the banks that have arranged debt-for-nature swaps have since faced scrutiny amid concerns the deals lacked transparency and were expensive to execute.
Ecuador’s 2023 debt-for-nature swap became the subject of a complaint by a group of civil society organizations who said it was marred by limited information-sharing and local consultation. An agreement between the parties was reached in November on a proposal for improved governance and transparency regarding the use of the swap’s proceeds.
(Adds Ecuador comment on risk mitigation, in eighth paragraph.)
