JPMorgan Chase & Co has successfully closed a landmark US$1 billion refinancing deal for El Salvador, which represents approximately 14 per cent of the nation's total debt of approximately US$21 billion or 59 per cent of its GDP.

Featuring a letter of credit (L/C) from the Development Bank of Latin America and the Caribbean (CAF), the deal will enable the small South American country to allocate a portion of the funds towards initiatives aimed at conserving its longest river.

Funding participants

The US International Development Finance Corporation (DFC), the government of El Salvador, Catholic Relief Services, the Environmental Investment Fund of El Salvador, and ArtCap Strategies are also participating in the deal to facilitate El Salvador's repurchase of US$1.031 billion of its outstanding bonds at significant discounts.

All savings generated by the transaction will be applied over time to support conservation, water security, and ecosystem restoration in the Rio Lempa watershed.

L/C and insurance catalyse investment

A US$200 million standby L/C is being provided by CAF while the US government's international development bank, DFC, is providing US$1 billion in political risk insurance (PRI).

The combination of the DFC's PRI and the CAF's standby L/C will provide integral credit enhancements that support the transaction, which in turn catalyses the additional investment in El Salvador's conservation and ecosystem restoration efforts in the Rio Lempa watershed. ArtCap Strategies acted as financial advisor and global coordinator for the transaction.

Rio Lempa watershed

The Rio Lempa watershed is one of the longest rivers in Central America and plays an important role in the well-being of cities, communities and the economy in El Salvador by providing drinking water, as well as supporting industry and hydropower generation, and irrigation.

It also supports diverse ecosystems that represent a large portion of the country's environmental heritage. Projects funded by the savings from the transaction are expected to enhance water quality, quantity, and reliability; strengthen climate resilience; protect the watershed's natural ecosystem, and mitigate water security risk in the region.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.