Colombia Initiates Strategic Bond Buyback Linked to Total Return Swaps

A consortium of six global investment banks has initiated a cash tender offer for twelve series of US dollar-denominated global bonds issued by the Republic of Colombia. The move, announced on August 27, 2025, is directly linked to a series of total return swap (TRS) transactions, signaling a sophisticated liability management exercise by the Colombian government to optimize its debt profile.

The purchasing banks are Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBVA, BME: BBVA), Banco Santander, S.A. (NYSE: SAN, BME: SAN), BNP Paribas Securities Corp., a subsidiary of BNP Paribas (EPA: BNP), Citigroup Global Markets Inc., a subsidiary of Citigroup Inc. (NYSE: C), Goldman Sachs & Co. LLC, a subsidiary of The Goldman Sachs Group, Inc. (NYSE: GS), and J.P. Morgan Securities plc, a subsidiary of JPMorgan Chase & Co. (NYSE: JPM).

The Tender Offer’s Framework

The offer targets a dozen outstanding series of Colombia’s global bonds with maturities spanning from 2027 to 2061. The purchasers will pay a fixed cash price for each series, plus any accrued and unpaid interest up to the settlement date.

While the offer is for a broad range of securities, the total amount to be paid for the tendered bonds, referred to as the “Maximum Purchase Price,” remains at the sole discretion of the purchasers. If the total value of tendered bonds for any given series exceeds the determined maximum, a proration factor will be applied. This structure provides the syndicate and, by extension, the Republic of Colombia, significant flexibility in managing the scale and scope of the buyback.

The specific bonds and their respective purchase prices per $1,000 of principal amount are detailed below:

Strategic Rationale and Total Return Swap Structure

The offer document explicitly states that the transaction’s primary purpose is for the purchasing banks to acquire the bonds to hedge potential obligations under total return swap (TRS) transactions expected to be executed with the Republic of Colombia.

This arrangement suggests that Colombia is entering into agreements with the banks where it will receive the total return (interest payments plus capital appreciation/depreciation) on its own debt, effectively neutralizing its exposure to those specific bonds. In return, Colombia would likely pay the banks a floating rate, such as SOFR, plus a spread. For the banks to hedge their position in this swap—where they are paying out the bonds’ total return—they must physically hold the underlying assets. This tender offer serves as the mechanism for the banks to acquire the necessary bonds from the market.

This structure allows the Ministry of Finance and Public Credit to synthetically manage its debt profile, potentially reducing interest rate risk or altering its maturity schedule without immediately retiring the debt from its balance sheet. At the maturity of the swaps, the banks are expected to deliver the bonds to the republic, at which point the debt would be formally extinguished.

Key Terms and Timeline for Investors

For bondholders considering the offer, the key dates are as follows:

• Expiration Time: The offer will expire at 5:00 p.m., New York City time, on Wednesday, September 3, 2025. This is also the deadline for withdrawing any tendered bonds.
• Announcement of Results: The purchasers expect to announce the aggregate principal amount of accepted bonds and any proration factors on Thursday, September 4, 2025.
• Settlement Date: The transaction is scheduled to settle on Monday, September 8, 2025.

Tenders must be submitted in principal amounts equal to the minimum authorized denominations, which is $200,000 for most series ($100,000 for the 6.125% bonds due 2041) and integral multiples of $1,000 in excess thereof. The process must be conducted through DTC, Euroclear, or Clearstream.

The offer’s primary condition is the successful execution of the TRS agreements between the purchasers and Colombia. It is important to note that the purchasing banks are severally, not jointly, liable. Each bank is only responsible for its own accepted portion of the tender.

The depositary and information agent for the offer is Global Bondholder Services Corporation.

US Dollars. Photo credit: Mano Chandra Dhas.