(Bloomberg) — In a small but lucrative corner of the market for structured credit products, boutique funds run by former Credit Suisse executives are making rapid inroads.
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Firms including ArtCap Strategies, co-founded by Antonio Navarro, and Enosis Capital, launched by Ramzi Issa, have negotiated key roles in two of the four so-called debt-for-nature swaps struck since October. ArtCap helped coordinate a $1 billion swap for El Salvador and is now in talks with about half a dozen governments in Latin America and Africa to advise on new transactions, Navarro said. And Enosis just advised on a $1 billion deal for Ecuador, with more in the pipeline, Issa said.
They’re vying for roles in deals that have attracted a number of Wall Street’s biggest banks. Firms that have completed debt swaps in recent months include JPMorgan Chase & Co. and Bank of America Corp. Though the market remains small, at just $4 billion, it’s estimated to grow to about $100 billion in the coming years.
Issa said that after holding senior structured credit positions at both Credit Suisse and UBS Group AG, his new setup at Enosis allows his small team to operate in ways that can be “more challenging in a larger institution.”
The swaps are finding favor with governments — typically junk-rated issuers — looking to refinance existing debt and put savings toward environmental projects. Deals are generally complex, bespoke and backed by multilateral development banks. Credit Suisse was the first commercial bank to bring in institutional investors back in 2021, and the bankers behind that work are now creating their own specialist funds.
ArtCap’s model is to originate and structure deals, and then bring in a large bank for the final stages of a transaction. Navarro said ArtCap advised El Salvador through the process of selecting a bank, which ultimately led to the government going with JPMorgan in its recent debt-for-nature swap.
A spokesperson for JPMorgan declined to comment. A representative for the government of El Salvador didn’t respond to a request for comment.
Bank of America, which handled the Ecuador deal on which Issa advised, is expecting the market to pick up. It’s gone from “an idea where people thought, this is so hard, it won’t get done, to two years later…there’s 10 or 11 deals announced,” BofA Chief Executive Officer Brian Moynihan said in a recent interview with the Financial Times.
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Navarro launched ArtCap in January 2023 together with Hieu Pham, another former Credit Suisse managing director, and Alejandro Jaramillo, who used to be chief commercial officer at Bladex. Navarro said the decision to break out was driven by a sense of paralysis within Credit Suisse at the time.
After Credit Suisse’s involvement in the Archegos Capital Management scandal — it lost $5.5 billion in 2021 resulting in considerable fines for mismanagement — it became “harder to get deals approved internally than actually getting the deals,” Navarro said. “The bank didn’t want to invest any money.”
When Credit Suisse finally collapsed, the “huge hole” it left in the market for debt swaps meant the time was ripe for ArtCap to add an advisory arm, Navarro said.
A big part of the success of debt swaps rests on the involvement of multilateral development banks. But in the Americas, the change in the US administration may pose some challenges, Navarro said.
There’s a “big question” over the new US administration and its objectives, he said. Ultimately MDBs are “channels by which to implement policy.” And it’s not clear the new administration is “going to continue with the policy of focusing on the environment and nature.”
MDBs and development finance institutions have helped enable deals by offering repayment guarantees or insurance. Their presence cuts costs for borrowers and helps attract investors to markets that might otherwise be deemed too risky.
The Inter-American Development Bank, in which the US is the largest shareholder, and US International Development Finance Corp., an agency of the federal government, have been the most active to date.
ArtCap is now branching out from traditional debt-for-nature deals and has started to pitch a new kind of swap framed around energy security, Navarro said. The goal is to have savings generated from debt refinancings go toward importing oil and gas from the US and constructing liquefied natural gas plants, he said.
“The structure is a very useful tool to project a foreign policy agenda,” he said.
(Adds BNEF data after eighth paragraph.)
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