1/ A restructuring of Lebanese Eurobonds poses formidable challenges, but it is not impossible. My two cents: start debt restructuring negotiations now, avoid a default, and understand the legal risks. Some of the latter I describe below (in the spirit of Buchheit's teachings).
2/ According to the Luxembourg Stock Exchange, Lebanon has 27 series of Eurobonds outstanding, all of which are governed by New York law and denominated in USD: bourse.lu/programme/Prog…. The fact that the bonds are governed by NY law is critical for their restructuring.
3/ Lebanon cannot NOT retroactively change the repayment conditions of these bonds by means of a changing its national laws - this is by the way what the Greek government did in 2012 at the advice of L. Buchheit's (ssrn.com/abstract=29143…).
4/ Absent this "local-law advantage", Lebanon should renegotiate with its bondholders, and this is where things become hairy. One the one hand, like any state, Lebanon enjoys sovereign immunity, which makes it expensive for investors to locate and attach any Lebanese assets.
5/ Many bondholders, except maybe hedge funds run by Paul Singer, will be reluctant to engage in a lengthy hunt-for-assets - they have a real interest in striking a fair deal. One the other hand, if Lebanon does not convince a sufficient share of "reasonable" investors,
6/ it may be excluded from international capital markets for a considerable time period, given that holdout investors will seek to prevent any new issuance of sovereign debt in New York or London. So, again, striking a deal with reasonable investors is what matters.
7/ The key contractual device to reach such a deal are "Collective Action Clauses" (CACs), which allow a (super-)majority of creditors to outvote litigious holdouts, and contractually "cram them down." In other words, CACs bind the minority of holdouts to the majority's deal.
8/ One issue with the CACs in Lebanon's 27 Eurobonds is that they do not use the latest single-limb CAC with full aggregation features. Rather, they rely on the old series-by-series voting mechanism, in which a majority has to be found in each individual series.
9/ The Greek PSI of 2020 serves as a cautionary tale in this example - because Greece's English-law bonds did not have the single-limb feature, holdout hedge funds blocked the restructuring of some smaller series, forcing Greece to pay them in full (scholarship.law.duke.edu/cgi/viewconten…).
10/ If Lebanon wants to impose a haircut, or extend maturities, it needs to convince at least 75% of bondholders in a given Eurobonds series to consent represented at the meeting (a quorum is for some odd reason not defined in the prospectus, or I just don't find it).
11/ Some might now wonder: could Lebanon just default on the March 2020 bond and then re-negotiate? I doubt that this is a good idea, given the legal implications. If Lebanon defaults on one of its bonds, 25% of bondholders could declare a "cross-default" (10.(a)(iv)).
12/ In other a 25% minority in one or several of the 26 Eurobonds could declare an "Event of Default", accelerate, and then run to the Southern District Court in New York. Then the real trouble starts, as a CAC-based restructuring becomes really difficult once some
13/ holdout investors have a judgement in their hand. This is because the judgement is an obligation enforceable against Lebanon that is different from a bond contract (which has a CAC). Sure, whether the NY courts go as far as they did 2012
14/ in Argentina is anyone's guess. But guessing is not a great prospect when the stakes are that high. A final issue that Lebanon needs to consider is the pari passu clause in its Eurobonds. While NY courts have recently relaxed their interpretations of this provision
15/ (casetext.com/case/bison-bee…), Lebanon should by all means refrain from trying to subordinate certain creditors by means of legislation (see Argentine "Lock Law"), as such measure will be easily attackable.
16/ To conclude: there is no easy solution. But the clock is ticking and serious debt restructuring negotiations should have started yesterday (Argentina has this time been quick to realize).
@AGelpern would be very interested in your take...
