On March 07th 2020, the Lebanese government announced that its does not intend to pay the $1.2B worth of Eurobonds maturing on March 09th.
The official statement emphasized on the country’s dwindling foreign reserves and therefore opted to prioritize the funding of basic imports over foreign debt payments amid the current crisis. The Lebanese government also revealed a willingness to negotiate with creditors on a debt restructuring, yet it refrained from dissipating further details on the form of the intended restructuring.
The decision prompted an immediate downgrade by the rating agency on March 09th 2020. Fitch downgraded Lebanon’s Long-term Foreign Currency (LTFC) Issuer Default Rating (IDR) from ‘CC’ to ‘C’.
Meanwhile, it maintained its ‘CC’ grade for the Local-currency IDR when more details are available on a restructuring timeline and whether it will include local currency debt.
A key piece of information from Fitch’s report is that Lebanon now has a grace period of a week (7 days) to pay the principal on the March 09th Eurobonds. Yet, the “failure to make the payment during the grace period will put the sovereign into ‘Restricted Default’ (RD) and the specific bond into ‘Default’ (D).”
Source: Fitch Ratings, March 2020