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The Bahamas closes a $500m international loan benefitting from a first-loss IDB guarantee

Fri, Jan 12th 2024, 03:36 PM
Finance

The Commonwealth of The Bahamas successfully closed a $500 million 10-year international commercial loan benefitting from a first-loss Policy-Based Guarantee provided by the Inter-American Development Bank (“the IDB”, S&P [AAA/Stable]) and arranged by Banco Santander, S.A. (New York Branch) as Global Coordinator and Mandated Lead Arranger (“Santander”, S&P [A+/Stable]).

The landmark transaction is the country’s largest credit-enhanced financing on the international loan market to date. This transaction, being the first of its kind for IDB, demonstrates The Bahamas’ strong commitment to the diversification of financing sources towards semi-concessional financing and blended finance solutions collaborating with the private sector. Additionally, the transaction is supportive of The Bahamas’ external funding pipeline, representing over 50% of external borrowing requirements for Fiscal Year 2023-24, and will fund eligible budgetary expenses, such as infrastructure, education, and social welfare projects. The execution of transactions with innovative credit enhancement structures is expected to provide a solid anchor to The Bahamas’ medium-term external funding plan.

The transaction’s credit-enhanced structure allowed The Bahamas to secure favorable financing terms, considerably more advantageous than those available on the international bond market. The IDB’s first-loss Policy-Based Guarantee will initially cover up to 40% of the scheduled principal and related interest, having allowed the IDB to develop an innovative structure with a multiplicator effect in which through a partial risk assumption, the private sector, led by Santander, is able to lend a much larger nominal amount. As a result, The Bahamas secured significant savings compared to market cost of funding at the time of transaction closing. This structure will advance the country’s objective of reducing debt service costs, extending maturities and tapping new liquidity pools as outlined by the Medium-Term Debt Strategy and Annual Borrowing Plan for Fiscal Year 2023/24.

Banco Santander S.A., and BNP Paribas, acting as Mandated Lead Arrangers and Original Lenders on the transaction, were advised by Clifford Chance US LLP. The Ministry of Finance was advised by Rothschild & Co as financial advisor and Hogan Lovells US LLP as legal advisor.

The Bahamas intends to capitalize on the success of this credit-enhanced financing and the approved second tranche of the IDB guarantee for up to $200 million to deploy its blended finance agenda through a second transaction over the course of Fiscal Year 2023/24.

The Commonwealth of The Bahamas successfully closed a $500 million 10-year international commercial loan benefitting from a first-loss Policy-Based Guarantee provided by the Inter-American Development Bank (“the IDB”, S&P [AAA/Stable]) and arranged by Banco Santander, S.A. (New York Branch) as Global Coordinator and Mandated Lead Arranger (“Santander”, S&P [A+/Stable]).
The landmark transaction is the country’s largest credit-enhanced financing on the international loan market to date. This transaction, being the first of its kind for IDB, demonstrates The Bahamas’ strong commitment to the diversification of financing sources towards semi-concessional financing and blended finance solutions collaborating with the private sector. Additionally, the transaction is supportive of The Bahamas’ external funding pipeline, representing over 50% of external borrowing requirements for Fiscal Year 2023-24, and will fund eligible budgetary expenses, such as infrastructure, education, and social welfare projects. The execution of transactions with innovative credit enhancement structures is expected to provide a solid anchor to The Bahamas’ medium-term external funding plan.
The transaction’s credit-enhanced structure allowed The Bahamas to secure favorable financing terms, considerably more advantageous than those available on the international bond market. The IDB’s first-loss Policy-Based Guarantee will initially cover up to 40% of the scheduled principal and related interest, having allowed the IDB to develop an innovative structure with a multiplicator effect in which through a partial risk assumption, the private sector, led by Santander, is able to lend a much larger nominal amount. As a result, The Bahamas secured significant savings compared to market cost of funding at the time of transaction closing. This structure will advance the country’s objective of reducing debt service costs, extending maturities and tapping new liquidity pools as outlined by the Medium-Term Debt Strategy and Annual Borrowing Plan for Fiscal Year 2023/24.
Banco Santander S.A., and BNP Paribas, acting as Mandated Lead Arrangers and Original Lenders on the transaction, were advised by Clifford Chance US LLP. The Ministry of Finance was advised by Rothschild & Co as financial advisor and Hogan Lovells US LLP as legal advisor.
The Bahamas intends to capitalize on the success of this credit-enhanced financing and the approved second tranche of the IDB guarantee for up to $200 million to deploy its blended finance agenda through a second transaction over the course of Fiscal Year 2023/24.
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