Facing mounting fiscal pressures and volatile market conditions in 2025, Colombia turned to an unusually sophisticated liability management operation to reshape its sovereign debt curve without destabilizing secondary markets. The result was a multi-layered transaction that combined a large cash tender offer with a complex derivative overlay — a structure that, for its scale and ingenuity, wins the award for Sovereign Liability Management Deal of the Year.
Executed in September, the operation centered on a cash tender offer launched by a consortium of international banks for twelve series of Colombia’s US dollar-denominated Global Bonds, with maturities ranging from 2027 to 2061. Roughly $23 billion of bonds were outstanding across the eligible lines. Over a tightly run four-day execution window, investors tendered about $5.4 billion, equivalent to roughly 24% of the eligible universe — a striking outcome given that Colombia had already completed a separate $3 billion cash tender for several of the same bonds just a month earlier, and despite the overlap with an active primary market calendar.
The cash tender was designed to work in tandem with a set of total return swap agreements between the Republic of Colombia and the participating banks. Under those TRS contracts, the banks acted as offerors in the tender to acquire the bonds needed to hedge their derivative exposure to the sovereign. Over time, the swaps will be settled through the return of the acquired Global Bonds to Colombia, allowing the sovereign to retire debt at a discount to par while smoothing execution risk and maintaining market stability.
In aggregate, the combined transaction is estimated at about $9.3 billion, reflecting the notional size of the TRS overlay rather than just the cash spent in the tender. Colombia purchased approximately $4.6 billion of Global Bonds in market value terms, excluding accrued and unpaid interest, paying a discounted cash price. By reducing the free float of those bonds in the market, the operation created a temporary liquidity squeeze that pushed prices to a six-month high, reinforcing the economics of the buyback and driving meaningful yield compression across the curve.
“The Colombian sovereign thought that some bonds were too cheap and tried to take advantage of that to improve the way their curve was trending,” says Adrian Guzzoni, the head of Latin America DCM at Citi, which acted as joint bookrunner. “It was done in a way that improved the cost of funding by 300 basis points.”
What set the deal apart was the breadth of the derivative architecture supporting the tender. Rather than referencing only the tendered Global Bonds, the TRS structure linked multiple asset classes and currencies in a single framework. The reference basket spanned roughly $4.6 billion of Global Bonds, the equivalent of about $3.1 billion of peso-denominated TES bonds, around $5 billion equivalent of short-term peso notes, and approximately $2.3 billion of US Treasury securities, with funding priced off a Swiss franc-based leg.
By spanning hard-currency and local-currency instruments alongside US Treasuries, the structure allowed Colombia to manage basis risk, duration and currency exposure dynamically while preserving secondary-market liquidity and price discovery. The operation built on a broader sequence of liability management exercises completed earlier in the year, collectively contributing to yield tightening of more than one hundred basis points across the curve since January.
Coordinating a cash tender alongside sizeable derivative exposures required precise alignment on valuation, settlement mechanics, documentation and risk allocation across multiple dealers. By pairing a discounted cash buyback with a flexible, multi-asset TRS overlay, Colombia demonstrated a modern, replicable liability management toolkit capable of delivering fiscal savings while managing risk in volatile conditions.
Republic of Colombia Total Return Swap Transaction
Joint Lead Managers: BBVA; BNP Paribas; Citi; Goldman Sachs; JP Morgan; Santander
Counsel to Issuer: Arnold & Porter; Brigard Urrutia
Counsel to Banks: A&O Shearman