The Republic of Ecuador issued the first social bond from a sovereign, raising $400 million.
The deal benefited from a partial credit guarantee from the AAA rated Inter-American Development Bank (IDB), the first time it had issued such a guarantee on any capital markets transaction.
Deal highlights:
Issuer: Republic of Ecuador
Value: $400 million
Maturity date: 30 January 2035
Tenor: 15 years
Coupon: 7.25%
Lead manager: Goldman Sachs was global coordinator, bookrunner and social bond structuring agent in connection with Ecuador's issuance of a $400 million social bond, and was placement agent and initial purchaser in connection with its repackaging. It was advised by Clifford Chance.
External review provider: Vigeo Eiris
Notes: The first social bond to be issued by a sovereign.
The $300 million guarantee, which covered both principal and interest payments, gave a one-notch increase in the rating assigned by Fitch versus unsecured Ecuador credit, and reduced significantly the financial costs for Ecuador.
The bond was simultaneously repackaged into two classes of notes via an innovative structure designed to maximise the benefit to the pricing of the bond. Clifford Chance's team in London advised on this complex structure.
The benefit of the guarantee was maximised by the repackaging structure to result in a 225 basis point improvement against Ecuador's 9.5 per cent 2030 bonds, which are the closest in tenor to the social bond.
The proceeds of the bond were to be allocated to a trust established for the purpose of financing Ecuador's "Housing for All" social housing project, which aims to address Ecuador's housing deficit by providing quality, sustainable and affordable housing.
The proceeds from the issuance will allow mortgage loans to be offered at a preferential interest rate of 4.99%, through the Ecuadorian financial system and a securitisation scheme.
Under this mechanism, some $1.35 billion will be offered to more than 24,000 middle- and low-income families.
Deborah Zandstra, who co-led the Clifford Chance team along with New York partner Jon Zonis, commented: "We are proud to have advised Goldman Sachs on this first-of-its-kind deal as Latin America pivots toward sustainable investments across the region."