CAF and Uruguay execute four innovative debt conversion transactions for USD 750 million

In 2024, the Ministry of Economy and Finance (MEF) of Uruguay executed a total of four currency and interest rate conversion operations on two of its loans with CAF, for a total of USD 750 million. Through these transactions, debt - originally subscribed in dollars (USD) at a variable interest rate - was contractually re-expressed into debt in Swiss francs (CHF) and yen (JPY) at a fixed interest rate.

These financial operations focused on two objectives of the Government of Uruguay's debt management strategy: (i) advancing the diversification of currency risk of the foreign currency-denominated debt sub-portfolio, and (ii) reducing the expected burden of interest payments.

Two of the transactions were executed in Swiss francs, each for an amount of USD 275 million. These foreign exchange hedging transactions were the largest in the history of CAF's sovereign loans. In the case of the conversions of the fixed-rate loans in Japanese yen, CAF incorporated innovative elements associated with a shorter conversion period than the remaining term stipulated in the original loan contract.

In selecting the currencies and conversion terms, as well as in defining the time sequence and timing of the conversions, the loan amortization schedule and technical market factors were considered, such as the evolution of current exchange rates (spot), the stability of the forward curve and the slope of the yield curve for both JPY and CHF. In this way, CAF aligned the efficiency and quality in the execution of currency conversions with the risk management strategies for Uruguay's external public debt, adopting the best market practices for this type of operation.

As a result of these operations and the coordinated effort between multidisciplinary teams from CAF and the MEF, “several financial and legal innovations were incorporated into CAF instruments that will benefit not only the Eastern Republic of Uruguay, but also constitute an expansion of the range of financial solutions from our multilateral organization at the service of all our shareholder countries,” said Gabriel Felpeto, CAF Vice President of Finance. 

These transactions reaffirm CAF's commitment to financial innovation and are an integral part of the agenda to support inclusive and sustainable development in Uruguay," said Miguel Ángel Ostos, CAF's Representative Director in that country.