Uruguay Issues First Sustainability-Linked Bond

Cleary Gottlieb represented the Republic of Uruguay (Uruguay) in an offering of $1.5 billion 5.75% sustainability-linked bonds due 2034, the first sustainability-linked bond issuance by Uruguay and only the second ever by a sovereign.

The offering priced on October 20, 2022, and is expected to close on October 28, 2022.

Sustainability-linked bonds are designed to motivate issuers to meet ambitious sustainability targets, which are measured by key performance indicators (KPIs). Unlike green bonds and other ESG-labeled bonds, the proceeds of these offerings are not directed to specific projects. Instead, sustainability-linked bonds provide that if the specified KPI is not achieved, the issuer will be subject to a step-up in the coupon rate on the bond.

In this issuance, Uruguay innovated by becoming the first issuer to include a coupon step-down if it overperforms on the pre-defined targets by a certain threshold. The targets contemplated by Uruguay’s bonds include achieving a reduction in aggregate greenhouse gas emissions, expressed in CO2 equivalent per real GDP unit, by 2025 compared to 1990 and maintaining or increasing the native forest area covering Uruguay’s territory by 2025 compared to 2012.

Concurrently with the bond offering, Uruguay launched an offer to purchase for cash certain series of outstanding U.S. dollar-denominated bonds of Uruguay, which is expected to settle on October 27, 2022.

Credit Agricole Securities (USA) Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, and Santander Securities Inc. acted as underwriters for the bonds offering and joint dealer managers for the tender offer.