Lebanese banks hold around $14.5 billion of the sovereign Eurobonds, the Central Bank holds $5.5 billion while the rest are held by foreign investment funds. We are talking theory that in case Lebanon defaulted then the U.S. would seize. The central bank (Banque du Liban, BdL) can always print enough liras to pay offer the former, but it is unable to print dollars to pay the latter. In the absence of the corona virus outbreak, it was only a matter of time before USD withdrawals ceased, as the existing stock is dry & the exchange rate would have continued depreciating (as I & others explained previously). Economy Minister Raoul Nehme, a former banker, explained on MTV that the discussions with creditors, and therefore banks, were not expected until after the plan was finalized in the context of negotiations with the IMF. For one, a progressive haircut is required. “The downgrade and Negative Outlook reflect the very high risk that the Lebanese government will undertake some form of debt restructuring in the near term given the loss of access to capital markets, the ongoing crisis in the domestic banking sector, a weakening international reserve position, and heightened political risk,” Capital Intelligence Ratings wrote in a note on Friday in which it downgraded the country. The minister explained that applying a haircut on the Eurobonds depends on the negotiations with the bond holders. Those who have deposits of over $1 million at a bank could receive a haircut of 50 percent, for instance. Some estimates say a 70 percent haircut is needed, Reuters reported. Eurobonds are frequently grouped together by the currency in which they are denominated, such as eurodollar or Euro-yen bonds. Lebanon can afford to wait to issue between $2.5 billion to $3 billion in Eurobonds until the market conditions are ripe but the government will definitely not miss the $650 million Eurobonds which mature early next week, a banking source said. But the banks, holding that the state is solely responsible for the crisis and should deal with the consequences, took the lead. The difference between the actual spread of 523 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 284 bps shows that the undervaluation is at 239 bps,” the report said. Introduction. Lebanon — which ranked 137th on the list of least corrupt countries out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International — is also slated to repay $1.2 billion in Eurobonds maturing March 9. Lebanon’s bonds don’t have this (the threshold for waiving a default is the same 75% for restructuring them so it’s useless). Defaulting on debt in the short term will reduce the amount that the country will need to pay back – more on this later – but this can have disastrous consequences in the long term. Lebanon may have saved itself the debacle of going into a kind of default-lite this week, but it’s hard to see how it’s going to wiggle out of a real default. 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"The Lebanese state will seek to restructure its debts, in a manner consistent with the national interest" through negotiations with creditors, Diab said in a live address. The country’s credit rating will fall drastically and make it much harder for Lebanon to attract foreign investment and much more expensive to take out loans. This is the first time Lebanon has defaulted in the payment of its debt. Lebanon is in the midst of a dangerous multifaceted crisis: an economic, financial, and socio-political one. An example of refinancing was used above as a form of restructuring– when a loan with a high interest rate is paid off with a lower interest rate loan, leaving the debtor with lower payments. 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"The difference between the actual spread of 445 basis points on Lebanon's Eurobonds and the Goldman Sachs' model-implied spread of 355 bps shows that the undervaluation is at 90 bps," the Byblos Bank report explained. Furthermore, Goldman Sachs classified Lebanon's Eurobonds that have a maturity of seven to 12 years as undervalued. Lebanon's finance ministry on Monday said it will "discontinue" payments on all dollar-denominated Eurobonds due in the next 15 years to safeguard dwindling foreign currency reserves. "The difference between the actual spread of 485 bps on Lebanon's Eurobonds and the Goldman Sachs' model-implied spread of 376 bps shows that the undervaluation is at 109 bps," the report said. 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Instead, holders receive interest when they present the coupon to the borrower, and receive the principal when the bond matures and the holder presents the physical bond certificate to the borrower. Eurobonds can be purchased in the same way as most other bonds through global stock exchanges. 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Lebanon is passing through an unprecedented economic and financial crisis unprecedented since its 1975-90 civil war. Members of the IMF are seen leaving after meeting with Lebanese Prime Minister Hassan Diab at the government palace in Beirut, Lebanon. In this process, the $1.2 billion Eurobond notes would be swapped for new bond notes that would mature later with a higher interest rate. Another downgrade would further impact Lebanon’s ability to borrow money in the future as lenders would demand higher interest rates for loans to an organization that recently defaulted. "Lebanon is very close to its obligation which is due in March and there is not enough time to go to the IMF to put a clear program for reforms that allows Lebanon to reschedule its debt," Ghobril said. Ghobril explained that defaulting on payment of Eurobonds must happen within a package by the International Monetary Fund (IMF). “The difference between the actual spread of 485 bps on Lebanon’s Eurobonds and the Goldman Sachs’ model-implied spread of 376 bps shows that the undervaluation is at 109 bps,” the report said. Lebanon's Finance Ministry has designated Barclays, Byblos Bank, Societe Generale de Banque au Liban and JPMorgan to co-manage the issuance of $1.5 billion in eurobonds to finance the public debt. Eurobonds explained (explainity® explainer video) - YouTube A default on debt will have far-reaching and long-lasting effects on Lebanon, and with no decision in sight on how authorities will handle the debt liability, many have asked the question as to what will happen next. 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