Barbados Launches the World’s First Debt-for-Climate-Resilience Transaction

Cleary Gottlieb represented the Government of Barbados in completing a groundbreaking debt-for-climate conversion transaction, allowing Barbados to generate approximately $125 million in fiscal savings to finance water reclamation and wastewater infrastructure projects to enhance climate change resilience.

This transaction, which is the first of its kind, sets a new benchmark for the future financing of climate adaptation which simultaneously relieves the burden of public debt.

The debt conversion transaction involved Barbados entering into a US$297 million equivalent sustainability-linked loan, with CIBC Caribbean Bank (Barbados) Limited, acting as arranger and facility agent (as well as Scotiabank (Barbados) and RBC Royal Bank (Barbados) as co-lenders). The local currency loan (denominated in Barbados Dollars) was backed by a total of $300 million in guarantees, with the Inter-American Development Bank (IDB) and the European Investment Bank (EIB) each contributing $150 million. Signing of the sustainability-linked loan occurred on November 25, 2024, and utilisation occurred on November 28, 2024. The proceeds of the sustainability-linked loan have now been used to finance the redemption of $293.3 million of Barbados’ existing domestic bonds.

The transaction is expected to generate savings of approximately US$125 million which, combined with a separate GCF grant to Barbados of $40 million, will enable the Caribbean island to utilise $165 million to invest in projects connected to water and sewage infrastructure, food security and environmental protection to mitigate the damaging effects of climate change. The centrepiece Barbados’ plan to enhance water security and supply is the creation of the South Coast Water Reclamation Facility, which will produce water for agricultural irrigation and groundwater recharge purposes, and has the potential to more than double water availability in the country by 2050. Under the terms of the sustainability-linked loan, Barbados is committed to meet sustainability targets linked to the volume and quality of water generated by the plant and any shortfall in meeting such targets will result in payment of an additional amount that will be directed to the Barbados Environmental Sustainability Fund.

The sustainability-linked loan incorporates a variant of the “natural disaster clause”, which Cleary Gottlieb previously developed as part of Barbados’ 2019 debt restructuring and 2022 “blue” loan. The natural disaster clause allows for payment deferral of the sustainability-linked loan upon the occurrence of certain climate-related events, as well as in the case of a future pandemic.