Will bondholders
negotiate or litigate?

Eurobond prices crash again

Minister of Economy and Trade Raoul Nehme said that the government is awaiting the decision of bondholders to cooperate in a debt restructuring effort or alternatively opt for a legal action.

“We are proposing to them to work hand-in-hand to find a solution, which is always better than litigation,” Nehme told Reuters. “But it is their choice to decide whether to cooperate or to go legal,” he said. “They have two options: Negotiate as we have said in good faith and as fairly as possible, or take the legal route. It’s up to them,” Nehme told Bloomberg.

As the Lebanese government has few assets outside the country, any court action would be about applying pressure rather than recouping “any real amount”, according to the minister. “Now they can always go and sue and try and seize assets ... but it will not work, legally speaking,” he said. “The laws in New York and other countries are very clear — immunity of government assets that are used for government purposes and of central banks’ (assets) as well,” Nehme said.

Ghazi Wazni, Minister of Finance, said that using the word “suspension” to pay the March 9 Eurobond is an indication of the goodwill of the government and that it is ready to negotiate with creditors. “We made the decision to default in an orderly fashion to mitigate the financial, economic and social consequences,” he said. “The government is still ready to negotiate with creditors, and the previous government should have started negotiating since November,” Wazni said.

Creditors have started opening lines of communications with Lebanon, said Hans Humes, the chief executive of New York-based distressed-debt investor Greylock Capital Management, which has formed a group with other bondholders.

Nehme said he did not know what way the bondholders are leaning. He expects that it would take a few weeks for them to decide.

He said that the government aims to restructure its debt once and for all.

Local banks, the largest holders of Eurobonds, have agreed to start talks on a restructuring, and hired Houlihan Lokey Inc. as advisers.

Eurobond prices for longer term issues dropped to 16 cents. Prices for issues maturing this year were at $25 for the April issue and $20 for the June issue.

“The IMF involvement will be tricky given the current U.S. policies,” said Humes. “There is no question that the heightened tension between U.S. and Iran has complicated the situation in this and many other ways,” he said.

Fitch Ratings cut Lebanon’s credit score to C from CC, reflecting an imminent default.