May 16 (Reuters) – Moody’s on Tuesday said it considered Ecuador’s debt buyback operation for providing debt relief and channeling funds to protect the Galapagos Islands a distressed exchange and a default.

Ecuador sealed the world’s largest “debt-for-nature” swap on record last week, selling a new “blue bond” that will funnel at least $12 million a year into conservation of the Galapagos Islands, one of the world’s most precious ecosystems.

The deal, executed by Credit Suisse, involved the Swiss lender buying back a portion of three of the sovereign’s bonds maturing in 2030, 2035 and 2040 worth $1.6 billion in face value.

The repurchase of the bonds had occurred at “deeply distressed prices”, Moody’s said in a report.

This was a loss to investors when compared to the original promise of the bond contracts and generating a significant reduction on principal for the sovereign, the ratings agency added.

Moody’s most recent rating action on Ecuador was in February, when it affirmed the South American country’s Caa3 speculative grade rating, with a stable outlook.