Chile’s Sustainability-Linked Bonds Offering and Exchange Offers

Cleary Gottlieb represented the underwriters and dealer managers in a landmark financial transaction by the Republic of Chile (Chile) that included (i) the issuance of $2.25 billion U.S. dollar-denominated notes, (ii) the issuance of €750 million Euro-denominated notes, (iii) an offer to exchange approximately $1.69 billion of U.S. dollar-denominated debt securities for U.S. dollar-denominated debt securities with longer maturities, and (iv) an offer to exchange approximately €4.95 billion of Euro-denominated debt securities for Euro-denominated debt securities with longer maturities.

Cleary represented Credit Agricole Securities (USA) Inc., HSBC Securities (USA) Inc., Santander US Capital Markets LLC, Scotia Capital (USA) Inc., and SG Americas Securities, LLC, as underwriters (the U.S. Joint Bookrunners & Sustainability Structurers), in the Chile’s SEC-registered offering of $1.15 billion 4.950% dollar-denominated sustainability-linked bonds (SLBs) notes due 2036 (2036 Notes) and $1.1 billion 5.330% dollar-denominated SLB notes due 2054 (2054 Notes). The offering of the 2036 Notes and 2054 Notes priced on June 27, 2023, and is scheduled to close on July 5, 2023.

Cleary also represented Crédit Agricole Corporate and Investment Bank, HSBC Securities (USA) Inc., Banco Santander, S.A., The Bank of Nova Scotia, London Branch, and Société Générale, as underwriters (the Euro Joint Bookrunners & Sustainability Structurers), in Chile’s SEC-registered offering of €750 million euro-denominated 4.125% SLB notes due 2034 (2034 Notes). The offering of the 2034 Notes priced on June 28, 2023, and is scheduled to close on July 5, 2023.

Pursuant to the terms of (i) the 2036 Notes and the 2054 Notes, Chile offered to pay step-up rates (ranging from 5 to 50 basis points), and (ii) the 2034 Notes, Chile offered to pay an additional coupon payment of 50 or 100 basis points, in each case, if Chile does not achieve the following sustainability performance targets: (a) annual absolute greenhouse gas emissions (GHG) of 95 metric tons of carbon dioxide, (b) a GHG budget of 1,100 metric tons of carbon dioxide between 2020 and the end of 2030, and/or (c) at least 40% of women on the boards of directors of companies reporting to the Chilean Financial Markets Commission by the end of 2031.

In addition, Cleary is representing the (i) U.S. Joint Bookrunners & Sustainability Structurers, as dealer managers, in Chile’s SEC-registered invitation to holders of certain of its outstanding U.S. dollar-denominated debt securities to tender such notes in exchange for 2036 Notes and 2054 Notes, and (ii) Euro Joint Bookrunners & Sustainability Structurers, as dealer managers, in Chile’s SEC-registered invitation to holders of certain of its outstanding Euro-denominated debt securities to tender such notes in exchange for 2034 Notes. The dollar exchange offer launched on June 27, 2023, and the euro exchange offer launched on June 28, 2023. Both offers are scheduled to expire on July 5, 2023, and settle on July 12, 2023.

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.