(Bloomberg) — Goldman Sachs Group Inc. and Bank of America Corp. are laying the groundwork for a swap that will help Ecuador manage its debt financing costs in exchange for a pledge to protect part of the Amazon rainforest, according to people familiar with the matter.

The two investment banks are preparing a deal ahead of formally engaging with potential investors for the transaction, said the people who asked not to be identified discussing private talks. The Nature Conservancy, a non-governmental organization, will be an adviser on the deal, they said.

The transaction will take the form of a so-called debt-for-nature swap, whereby a portion of existing debt is refinanced by selling a new bond at better terms, with a chunk of the savings going toward nature conservation. Such swaps typically take place when the existing debt trades at a discount, and they usually involve guarantees on the new bond from multilateral lenders such as the Inter-American Development Bank. The guarantees function as a sweetener for private investors, and are intended to keep debt costs down for the borrower.

“We are always working on green growth issues and aligning conservation with environmentally-friendly growth and job creation,” Ecuador Finance Minister Juan Carlos Vega wrote in a statement responding to a request for comment. “The reduction of the debt stock is also a beneficial objective for the country.” He declined to comment on specific transactions.

Spokespeople for Goldman Sachs and Bank of America declined to comment.

Fitch Ratings recently confirmed Ecuador’s long-term foreign currency debt rating at CCC+, which is seven steps below investment grade. A bond issued in connection with a debt-for-nature swap would likely carry an investment grade, thanks to the guarantees provided by multilateral lenders.

Last year, Ecuador completed the largest ever debt-for-nature swap of its kind, a transaction that is expected to generate more than $1 billion worth of savings for the government while helping to protect habitats of the Galapagos Islands. Credit Suisse, which was taken over by UBS Group AG last year, arranged the transaction.

The market for debt-for-nature swaps had been dominated by Credit Suisse before its takeover, and Bloomberg has previously reported that UBS is now looking to do its first such deal for Barbados in the form of a so-called debt-for-climate swap. Other banks to have voiced interest in helping arrange similar swaps include Citigroup Inc., Barclays Plc and Standard Chartered Plc. BofA arranged a $500 million debt-for-nature swap for Gabon last year.

There’s “great potential” for such projects in helping countries meet their conservation and climate goals, a representative for The Nature Conservancy said in an emailed statement to Bloomberg. The institution, which has advised on debt-for-nature swaps for a number of countries including Belize, Barbados and Gabon, declined to comment on Ecuador’s potential deal.

Ecuador bonds due in 2035 gained as much as 1.7 cents on the dollar, while bonds maturing in 2030 were up 1.3 cents as of 10:50 a.m. in New York, according to Bloomberg indicative prices.

The market “loves buyback headlines,” said Siobhan Morden, managing director for Latin America fixed income at Santander in New York, adding that such news is “typically good” for a rally of one or two cents.

The transaction, if it goes ahead as expected, “will help improve the amortization schedule of bonded debt,” especially as Ecuador’s International Monetary Fund program had projected external market funding of $1.5 billion for 2025 and $2 billion for 2026 and 2027, which seemed “challenging,” said Ricardo Penfold, a managing director at Seaport Global in New York.

The swap deal “could significantly reduce funding needs in 2026 and 2027,” he said.

–With assistance from Vinícius Andrade.

(Adds Ecuador bond prices in 10th paragraph, comments in final paragraphs.)

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