Sunday, September 10, 2023

"Before Collapse, Credit Suisse Quietly Conquered an Obscure Debt Market – Debt-for-nature Swaps"

First up, re-using the introduction to September 3's "Technocrats Won’t Solve the Climate Crisis" (but will make a ton of money in the attempt):

This is happening right now and it is big, big money. Come get you some.

First up as an introduction to this stuff for folks who are new to the concept, from Jacobin Magazine, August 25:

In January, the Biden administration launched an ambitious plan for a valuation of all the United States' natural resources. But the initiative, which aims to encourage environmentally responsible investment, is naive and confused.... 

And from Bloomberg via the refreshingly idiosyncratic Wrong Kind of Green, March 22:

The collapse of Credit Suisse isn’t just worrying for the global financial system. It’s a banking crisis that also has real consequences for the fight against environmental degradation.

Before its rescue by Swiss rival UBS, Credit Suisse had quietly become a major player in an obscure market that purports to help developing countries ease their debt burdens in exchange for protecting nature. Known as debt-for-nature swaps, the complex financial instruments help governments restructure their debt to raise money that can be used to fund conservation efforts.

Credit Suisse was the sole structurer and arranger of the world’s largest debt-for-nature swap, a $364 million deal that it orchestrated in 2021 along with The Nature Conservancy, a charity, for Belize. Last year, it sealed another $150 million deal for Barbados.

The deals were likely a good source of profits for the bank, according to Daniel Munevar, an economic affairs officer at the United Nations Conference on Trade and Development. The Belize deal was “free money for Credit Suisse because they hold no risk whatsoever,” he said. Part of the transaction was insured by the US International Development Finance Corp., which agreed to effectively cover payments if Belize defaulted. Credit Suisse helped design a similar instrument for Barbados, this time backed by the Inter-American Development Bank and TNC.

Officials from Belize, Barbados and TNC said that Credit Suisse’s troubles would have no impact on their existing debt-for-nature arrangements. But any new debt-swap deals that Credit Suisse may have had in the works “will not happen any time soon,” said Munevar.

While debt-for-nature swaps have been around since the 1980s, Credit Suisse has in recent years helped revive interest in the instruments and for the first time opened them up to institutional capital. The bank raised money for Belize and Barbados from pension funds including Sweden’s Alecta and Nuveen LLC, a unit of the US’s TIAA, by issuing so-called blue bonds tied to the deals.

Image source: Carbon Credits website, November 9, 2022, “Debt-for-Nature Swaps Are Drawing Attention, Carbon Credits Play A Role”

To do so, Credit Suisse developed complicated structures involving multiple “special purpose vehicles” responsible for payments that stand alone from the bank after the deal is closed, according to a sustainable bond investor with close knowledge of debt-nature swaps who asked not to be named. Those SPVs will probably insulate borrowers and investors from any fallout from Credit Suisse’s sale, the person said....