The ten-year US $1.2 billion Eurobonds with a coupon rate of 6.375% are due to mature on 9 March 2020, amidst an unprecedented economic and financial downturn in Lebanon, and a forthcoming debt crisis. Such bonds were issued under the US $22 billion Global Medium-Term Note Programme and listed on the Luxembourg Stock Exchange, and are primarily governed by the Program Agreement of 1 March 2010, the Fiscal Agency Agreement of 1 March 2010, the Base Prospectus and any supplements thereto, and the Final Terms Agreement of 8 March 2010.
The Lebanese government is yet to announce its final decision on how it will address such payments, and whether it will decide to pay, restructure or default. Resorting to orderly or unilateral default might put Lebanon at immense risks, besides its implications on the economy and the country’s credit rating.
Although there has not been a conventional introduction of collective action clauses (CACs) which typically permit restructuring of securities across several classes, the Lebanese government might still attempt to reach an agreement with the bondholders holding at least 75% in aggregate principal amount of the bonds in a duly convened meeting, for the restructuring and rescheduling of the debt payment.
However, there is a risk that the bondholders are to institute proceedings against Lebanon in case of failure to reach an agreement or even upon the unilateral default. The Base Prospectus grants the courts of the State of New York and the federal court sitting in the City of New York, Borough Manhattan, the non-exclusive jurisdiction to settle any disputes arising from such bonds. Also, the courts of Lebanon are granted jurisdiction. The enforcement of any foreign judgment in Lebanon requires the satisfaction of specific conditions provided for under applicable Lebanese law, through what is known as an exequatur process.
Foreign bondholders could benefit from further protection under bilateral investment treaties (BITs). Lebanon has concluded a number of BITs with countries including, inter alia, Luxembourg, the United Kingdom, and Germany. Consequently foreign investors could consider resorting to international investment arbitration before the International Centre for the Settlement of Investment Disputes (ICSID), as was the case in the Argentinian financial crisis back in 2001.
In this context, questions of sovereign immunity remain a key consideration. Per the terms of the Base Prospectus, save in specific circumstances, Lebanon has purportedly waived its sovereign immunity (both its immunity of jurisdiction and execution) under the general conditions of the Base Prospectus to the extent permitted by the Foreign Sovereign Immunities Act of 1976 of the United States and Lebanese law. The enforceability of these waivers, even if limited in scope, remain to be assessed in light of the provisions of Lebanese law. International investors would be well advised to carefully consider these matters within the broader matrix of risk and their available courses of action.
It has been reported that it is likely the government would refer to orderly default to reach an agreement with bondholders and attempt to restructure and reschedule its Eurobond debt. It remains to be seen what will be the government’s decision in this regard and the extent to which it will engage Lebanon’s liability on both local and international fronts.
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