Bond deals arranged by Credit Suisse and Bank of America Corp. in connection with debt swaps for emerging-market issuers are facing renewed scrutiny, after the International Capital Market Association issued new labeling guidelines.
The bonds were sold over the past few years to finance so-called debt-for-nature swaps, through which sovereigns refinance their debt in exchange for marine conservation pledges. Credit Suisse and BofA labeled the bonds “blue” to reflect those commitments.
Blue bonds are a small but growing corner of the sustainable debt market, which is currently dominated by green bonds. To warrant a green or blue label, a bond issuer must put all the proceeds generated through a sale toward environmental or maritime goals, according to ICMA. ICMA defines green bonds as “any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or refinance eligible green projects,” with blue bonds representing “a subset of that,” Simone Utermarck, director of sustainable finance at ICMA, told Bloomberg. The blue bonds being sold in connection with debt-for-nature swaps are “a completely different construct,” she said.
Still, Pfaff said ICMA doesn’t “underestimate the risk” of market participants in general “entertaining ambiguity about whether something is a use-of-proceeds bond or not.” This would be “a significant negative development,” he said.
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