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Covington & Burling Advises on Debt-for-Nature Swap to Protect Peruvian Tropical Forests

June 26, 2002

June 26, 2002 - WASHINGTON, D.C. - The United States Government and the Government of Peru signed a debt-for-nature swap agreement today that will reduce the sovereign debt of the Government of Peru and help conserve over 27.5 million acres of tropical forest, an area larger than the State of Virginia. The deal will fund conservation efforts in protected areas in Peru that are home to numerous endangered animal and plant species, including the pink river dolphin, harpy eagle, jaguar, giant river otter and walking palm.

The transaction was made possible by a $1.1 million contribution from the "big three" U.S. conservation organizations: Conservation International, The Nature Conservancy and World Wildlife Fund. It marks the first time that the three groups have joined forces with the U.S. Government to advance a "subsidized" debt-for-nature swap. Stuart Irvin and Steve Hess of Covington & Burling acted as counsel to the U.S. conservation groups; they provided extensive advice on structuring the transaction and assisted in negotiating with both governments.

Under the terms of the agreements, the conservation groups will contribute $1.1 million and the U.S. Government will provide $5.5 million to cancel a portion of Peru's debt to the United States. The debt was incurred by the Government of Peru to purchase surplus grain from the United States. Peru will save approximately $14 million in debt repayments over the next 16 years, and in return will provide the local currency equivalent of approximately $10.6 million to fund conservation activities in Peruvian national reserves and other ecologically important protected areas over the next 12 years.

This is the second transaction in which Covington has advised environmental organizations in the negotiation and documentation of debt-for-nature swaps. Covington has become the leader in the legal aspects of subsidized forest conservation transactions and looks forward to working with corporations seeking carbon sequestration opportunities in this fast-developing area.

For more information, please contact Stuart Irvin, 202.662.5129 or Noël Decker, 202.662.6361.

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