Moody’s Ratings says a growing number of Sub-Saharan African sovereigns are turning to total return swaps (TRS) and similar collateralized financing structures to raise foreign-currency funding, especially when conventional eurobond issuance is expensive or difficult.

According to the report, these instruments can provide short-term liquidity relief, but they also introduce credit risks that are not usually present in traditional commercial borrowing. Moody’s highlights concerns around limited transparency, collateral requirements, margin calls, closeout rights, and creditor ranking.

The report notes that Angola, Nigeria, and Senegal have used or approved TRS-related structures, although the instruments still represent a relatively small share of their overall borrowing. Angola’s $1 billion TRS in December 2024, later expanded, is cited as a key example. Nigeria’s approval of a TRS programme of up to $5 billion suggests the instrument could become a more meaningful alternative funding channel.

Key Points

Moody’s identifies three major credit risks:

1. Debt transparency risk
   TRS can obscure the true cost of borrowing and the real scale of sovereign debt, especially when only cash received is recorded and collateralized bonds are not fully reflected in debt statistics.

2. Liquidity risk from margin calls
   If the value of pledged sovereign bonds falls, governments may be required to post additional cash or collateral at the same time they are already under financial pressure. Angola reportedly faced a $200 million margin call after bond prices weakened.

3. Restructuring and creditor-priority risk
   TRS counterparties may have closeout rights that allow them to liquidate collateral before or outside a wider debt restructuring process, potentially weakening recovery prospects for unsecured creditors.

Full News-Style Extract

Moody’s Ratings has warned that total return swaps and other collateralized financing structures are creating new credit risks for African sovereigns, even as they provide much-needed foreign-currency liquidity.

In a sector in-depth report dated 22 June 2026, Moody’s said several Sub-Saharan African governments have increasingly turned to TRS-style instruments when bond market access is costly or restricted. These structures allow sovereigns to raise cash by pledging assets, often their own debt instruments, as collateral.

The agency said the use of these instruments forms part of a broader shift toward private and collateralized financing. While commercial bank lending has long been part of sovereign financing, Moody’s said TRS structures are more complex, less standardized, and carry risks distinct from ordinary loans or eurobond issuance.

Angola, Senegal, and Nigeria were cited in the report. Angola used a $1 billion TRS in December 2024 backed by its own sovereign bonds and later expanded the facility. Senegal has also used collateralized financing, while Nigeria has approved a TRS programme of up to $5 billion.

Moody’s said the main concern is that TRS transactions can reduce transparency around a sovereign’s true debt profile. Key terms such as collateral requirements, margin call triggers, closeout rights, and creditor ranking are often not publicly disclosed.

The report also warned that margin call provisions can create procyclical liquidity pressure. When a sovereign’s bond prices fall, the value of its collateral declines, potentially forcing the government to provide more cash or collateral at a time of market stress. Moody’s cited Angola’s $200 million margin call as an example of how this risk can materialize.

The agency added that lower-rated sovereigns face the greatest credit pressure from these instruments. For countries in the B to Caa rating range, weaker liquidity buffers and higher sensitivity to borrowing costs make TRS-related risks more significant.

Moody’s also warned that broader use of collateralized borrowing could hurt sovereign creditworthiness by encumbering government assets and weakening confidence among unsecured creditors. If investors believe more sovereign debt is being issued with collateral protections they do not enjoy, they may demand higher yields or reduce participation in future bond issuance.

The report concluded that while TRS can offer liquidity relief, their growing use could increase debt opacity, create contingent liquidity pressures, and complicate future debt restructurings.