Baker McKenzie won Finance Team of the Year at the Legal Business Awards for representing project manager Oceans Finance Company in structuring and implementing the government of Ecuador’s $1.6bn debt-for-nature swap and providing $300m for the Galápagos Islands – the largest marine conservation debt conversion to date.
LB spoke with partners Matthew Cox and James Tanner (pictured, middle) to learn more about their experience working on this landmark deal, the challenges they encountered, and what it meant to win Finance Team of the Year.
The deal saw the team work with colleagues in the firm’s US offices for two years to land an end result that exchanged Ecuador’s sovereign bonds, valued at over $1.6bn, for a $656m loan made from the proceeds from a marine conservation-linked bond, with political risk insurance from the US International Development Finance Corporation (DFC) and an $85m guarantee from the Inter-American Development Bank (IAB).
Ecuador also agreed to provide more than $300m of the savings it realises from the transaction to Delaware-based non-profit conservation fund the Galápagos Life Fund (GLF), to be used for marine conservation around the islands over the next 18 years.
What was your reaction to receiving this award?
Matthew Cox: We are delighted to receive the market recognition this deal deserves. The Ecuador transaction has opened the market for debt for impact swaps to be done at scale. The use case for this new product is far reaching and it is great to be at the forefront of the innovation.
James Tanner: It’s really refreshing, pleasing, and rewarding in itself to do something like this. Using our experience and skills as finance lawyers to support and advise on these deals is truly making a difference. It’s a rare example of a true win – for the people of Ecuador, the finance providers, and the market, which now has a whole new product. There are lots of positives for everyone involved.
What made the deal particularly interesting?
JT: From a capital markets perspective, this essentially functions like an exchange offer. The old debt is being swapped out and replaced with new debt, either issued to the same holders or to the broader market. While the process of retiring the old debt is complex, it isn’t particularly remarkable on its own. What stands out is the involvement of development finance institutions like DFC and the IADB and the conditions required for their participation. Such institutions insist that some of the funds be allocated for ‘good purposes’ – for example, environmental initiatives like saving endangered species. The challenge lies in how this requirement is implemented, which is where our role became critical.
Could you provide more detail about the challenges?
JT: First, the Ecuadorian government – or any government participating in such deals – has to agree to a range of commitments. In our case, for instance, they agreed to measures like installing monitoring devices on the national fishing fleet to prevent overfishing or illegal activity in protected areas. They also promised to establish a new national park with protected zones. These commitments are politically sensitive because they bind not just the current government, but future ones as well, ensuring continuity in environmental protection efforts.
The second aspect is more financial. A portion of the savings generated by the deal must be used for these ‘good purposes’. This is done by setting up a trust fund, which we helped establish. The money in the fund is then distributed through grants that align with specific objectives. Negotiating these objectives is also politically delicate, as even though Ecuador no longer directly controls the funds, the government wants to ensure they align with national priorities. This creates tension with the development finance institutions, which aim to direct as much money as possible into the trust fund while keeping the use of those funds tightly restricted.
In essence, the development finance institutions were imposing conditions on Ecuador in order to provide their credit support which makes the transaction work. Negotiating the structure of the trust fund was complex and sensitive, involving decisions about its goals, governance, and board composition. It required a delicate balance between including Ecuadorian government representatives and ensuring impartial oversight from third-party observers, civil society, and other stakeholders who initiated the deal. Our role was to advise the project manager and sponsor throughout this intricate process.
Where did the work originate from?
MC: It really was a happy accident. I’ve worked with this client for almost 15 years since the first deal of this type in the Seychelles, and the latest Ecuador deal was an evolution of that. I was working at a previous firm based in Boston, which happened to be where The Nature Conservancy was also located. They were working on bringing the Seychelles deal to fruition and needed English law advice. Since I was in the London office and chaired the pro bono committee, I got the call and jumped at the chance to help. I’d love to say the opportunity came through strategic planning, but in reality, I was just in the right place at the right time .
These types of deals are inherently global – typically involving US NGOs collaborating with sovereign nations that owe the debt, often island nations. While the financing elements primarily involve key financial centers like London and New York, the substances of the deals often focus on more remote countries like Ecuador, Belize, and the Seychelles.
JT: When we first started working with this client, it was through pro bono work, which is a great example of how pro bono can benefit everyone involved. Not only is it rewarding on its own, but it also demonstrates how pro bono efforts can lay the groundwork for future projects that eventually become billable and even award-winning. It’s a strong testament to the value of pro bono work, both in terms of its immediate impact and its potential to lead to meaningful opportunities down the line.
Do you expect more deals like this?
MC: We are currently working on three other live deals in three different countries, and the market for these types of transactions is incredibly hot. However, it operates like a barbell or hourglass, presenting challenges on both ends.
On one side, you have sovereign nations that are desperate for more fiscal space and financial resources. This product isn’t just about environmental conservation, like saving turtles – it can be applied to any of the UN’s Sustainable Development Goals, such as addressing poverty, hunger, education, and gender equality. These countries face resource constraints and need to tackle a wide range of priorities, like climate change, while managing countless other demands. The challenge is how to allocate these limited resources effectively, and this product helps by relieving some of the financial pressure and allowing more focus on ESG and sustainability goals.
On the other side, there’s strong investor demand in the capital markets. There’s a huge appetite for products that align with ESG goals and are used for positive, impactful purposes. The bottleneck, however, lies in securing the credit support (by way of credit insurance and guarantees) provided by appropriate financial institutions. To date the majority of support has ultimately come from the US government. Given geopolitical and resource limitations, this support is crucial. Finding ways to expand the number of institutions willing and able to support these transactions is something market is working hard to address.
The team that advised Oceans Finance Company on the deal was led by banking partner Matthew Cox in London and corporate and securities partner Tom Egan in Washington DC, with support from senior associates including James Tanner and Ben Bierwith in London, both of whom are now partners. Tax partners Glenn Fox in New York and Rodney Read in Houston assisted on the structuring of GLF.
