In late 2022, Stephen Liberatore, CFA, lead portfolio manager for and head of Nuveen’s impact fixed income strategies, picked up a phone call from colleagues at investment bank Credit Suisse regarding a marine conservation-linked bond tied to a debt-for-nature swap (“swap”). The swaps, which had been used since the 1980s but were back in the spotlight as a result of global macroeconomic challenges and renewed environmental concerns, were used to convert portions of sovereign debt into more manageable debt. The restructured debt was then held by a local entity in exchange for a commitment to environmental conservation and sustainability projects. Liberatore’s team had analyzed a number of major conversions to date including those of the Seychelles, Belize, Barbados, and Gabon but had only participated in half of the aforementioned deals. The newest deal, and the largest debt-for-nature swap to date, sought to exchange $1.63 billion of Ecuador’s International bonds for a $656 million loan, which was the marine conservation-linked bond being shown to Nuveen. Aptly titled Project Darwin, the offering would finance nearly $323 million for marine conservation in the Galápagos islands over the next 18.5 years. While the deal seemed straightforward, Liberatore had to be sure that he remained committed to Nuveen’s own process and approach. Above all, the team had to value the bond amid a significant number of risks and a substantial amount of uncertainty.
