Chile’s Inaugural Sovereign Sustainability-Linked Bond Offering

Cleary Gottlieb represented BNP Paribas Securities Corp., Credit Agricole Securities (USA) Inc., and SG Americas Securities LLC, as underwriters, in the Republic of Chile’s (Chile) SEC-registered offering of $2 billion 4.34% sustainability-linked bonds (SLB) due 2042.

The offering of the notes priced on March 2, 2022, and closed on March 7, 2022.

SLBs are a particular type of financial instrument designed to motivate issuers to meet ambitious sustainability targets, which are measured by key performance indicators (KPIs). Unlike green bonds and other sustainability-labeled bonds, the proceedings of these instruments are not directed to specific projects but the bond coupons are linked to the achievement of the predetermined sustainability targets. If a target is missed, the issuer will be subject to a financial penalty, usually in the form of a higher coupon.

The climate change targets contemplated by Chile’s SLB include complying with two maximum CO2 emission targets in line with Chile’s commitments under the Paris Agreement and reaching 60% of electricity production through non-conventional renewable energies by 2032.

In the midst of the international crisis involving Ukraine and the resulting volatile and uncertainty in the global economy and financial markets, Chile achieved a historic milestone by being the first sovereign to issue an SLB.