Eurobonds double
since mid-September

Goldman Sachs latest report revisits

recovery value of debt at 25 cents

The Eurobonds' value has skyrocketed from 6.2 cents in mid-September to 13.47 cents earlier this week. It has tapered down a bit to 13 cents today. It is the highest price since more than 2.5 years. The upward trend coincides with the cease-fire with Israel and the perceived weakening of Hezbollah, and market hopes for a long-awaited presidential election in January 2025 followed by a new government that will possibly undertake reform measures that may include a resolution to the default on Eurobonds.

Goldman Sachs has estimated in a recent report the bond recovery value at 25 cents. Until recently, most international bank reports had estimated the eventual recovery value to be 15 cents.

Goldman Sachs has been buying Eurobonds in the past few months.

Goldman Sachs' report, ‘CEEMEA Economics Analyst Report, Revisiting Lebanon Debt Recovery Values’, outlines a three-step methodology to estimate recovery values for Lebanon’s Eurobonds:

1. Determining the Haircut: To bring public debt to a sustainable level—targeting a debt-to-GDP ratio below 80 percent within a decade—a 75 percent haircut on external debt is deemed necessary.
2. Applying the Haircut: With total debt projected at $47.3 billion in 2025, including past-due interest and $2.9 billion in bonds for depositor compensation, this translates into a $35 billion write-off.
3. Calculating Net Present Value (NPV): Recovery values are derived from ten-year bonds carrying an eight percent coupon, discounted at a 12 percent exit yield. These values will vary based on the payment profiles of individual bonds and prevailing market conditions.

For this restructuring to succeed, Goldman Sachs identifies key prerequisites:
- A permanent ceasefire agreement with Israel
- Election of a President and formation of a new government
- Completion of IMF-mandated reforms
- Parallel negotiations with bondholders and IMF approval of a final program.

On the economic front, the report assumes moderate fiscal reforms, a rebound in growth, and a gradual stabilization of the lira following an initial sharp devaluation. Inflation is expected to spike temporarily but stabilize at four percent annually.

Goldman Sachs’ Debt Sustainability Analysis (DSA) underscores the necessity of a 75 percent haircut for Lebanon’s financial recovery. This would enable the debt-to-GDP ratio to stabilize at 80 percent by 2035, provided reforms and growth targets are met.

The report also evaluates potential risks:
- Downside: Delays in bond restructuring, slower growth, persistent currency depreciation, and higher banking sector costs.
- Upside: Stronger fiscal consolidation, currency stabilization, and increased external financial support could lead to higher recovery values.

Significant challenges remain for the execution of this roadmap. The report highlights the reliance on political stability and effective governance to achieve these targets. Key assumptions—such as fiscal discipline and controlled currency depreciation—will require sustained effort in a country long plagued by political and economic turmoil.