I’ve received lots of questions about Argentina’s default experience in 2003+ and whether it’s relevant to Lebanon. It is relevant but not in the way some people think. I explain below.
Note: ALL assets inside Lebanon are immune. So we are only discussing foreign assets below.
Note: ALL assets inside Lebanon are immune. So we are only discussing foreign assets below.
1- Argentina’s bonds at the time required 100% vote by bondholders to modify the terms (restructure). Lebanon’s require 75% vote by series. Different threshold. Significantly easier to get a deal done though of course still takes careful work and expertise by trained experts.
2- Argentina convinced 93% of bondholders to agree to a restructuring. The 7% holdouts were the problem. Argentina’s bonds had a clause which was interpreted by a judge at the time to mean Argentina cld not make payments on the restructured bonds without paying out the holdouts.
3- That was a huge problem because it meant Argentina was in default on the new restructured bonds because it was prevented from making payment on them until it resolved the issue with holdouts. So it’s default lasted 10+ years. Look up the pari passu clause in those Argy bonds.
4- Argy parliament also passed a law that prevented the Govt from paying out the holdouts (lock law) which tied the governments hands and limited its options.
5- Since then, most sov bonds include a “vulture proof” clause to prevent this situation (pt 2 👆🏽) from arising. The courts have also moved away from the strict interpretation that hurt Argy. See the relevant clause in Leb’s Eurobond 2018 prospectus which incl the new language 
(note: I don’t have access to all the prospectuses)
6- A court in Ghana did impound a Argentina navy vessel. It’s true. But this was a mistake (military assets are immune) and the court quickly released the vessel. It was a high profile story but ultimately insignificant.
7- Leb’s bonds also allow 50% of bondholders to reverse acceleration of the bonds (which gives holdouts the ability to sue). Given that Leb bonds are fiscal agency (in which its each bondholder for herself), theres an incentive for big holders to prevent small holders from suing
8- An important outcome of Argy experience is that court ruled that official assets like foreign currency reserves & gold are immune. Only commercial assets may be subject to attachment by a court.This is important. Govt doesn’t have any foreign commercial assets as far as I know
9- The court also ruled that a central bank buying and selling and repaying Govt debt does not imply that the Govt exerts day to day control over the central banks activities.
10- Why’s that relevant? First let’s remember that the Eurobonds are loans to the Govt not the central bank. The central bank is not a party to this transaction so in the first instance its immune.
11- However, if you can demonstrate that the Govt exerts day to day operational control over the CB (not the case in Leb), then when the Govt waived it’s sovereign immunity, it de facto waived the central banks immunity. But against, ONLY over assets used for commercial purpose
12- MEA for ex is a commercial asset which is owned by BDL. So in the first instance MEA is immune unless you demonstrate Govt has day to day control over BDL, which it doesn’t and the Argy court cases suggests as much.
13- Finally, in the end Argy got a raw deal and there were lots of lessons learned. But despite all that, nobody would argue today that Argentina should have run down the remainder of its reserves to pay bondholders at par. Restructuring was still the best option.
14- Argy experience teaches that the restructuring process requires deep expertise and knowledge and needs to be handled careful to get the Govt/taxpayer the best deal possible. It absolutely does *not* teach that insolvent countries seeking debt relief is a bad idea.
