Lebanon’s Eurobonds face a narrow window for reform

As Lebanese Eurobond prices fluctuate between cautious gains and slight declines, time is running out for the Lebanese government to begin serious negotiations with creditors. While there is still about a year and a half until March 2028, the deadline for the suspension of the state's right to invoke statute-of-limitations defenses against claims by Eurobond holders, the question remains: what will happen if the required reforms are not completed by then, especially given that the Financial Gap Law is expected to take considerable time to finalize?

Eurobonds are currently trading between 25 and 26 cents on the dollar, compared to around 6 cents following the onset of Lebanon's financial crisis in late 2019. The extension of the statute-of-limitations period on both principal and interest payments did not eliminate creditors' rights to seek repayment or file lawsuits. Rather, it gave bondholders more leverage in future negotiations while buying the state time to implement reforms and strengthen its negotiating position.

But what happens if the deadline arrives and the government has not fulfilled its obligations?

A financial adviser told Nidaa Al Watan that if Lebanon reaches 2028 without entering meaningful negotiations with creditors, it would indicate that the country remains trapped in crisis. In that case, the government would almost certainly be forced to extend the suspension period again, delaying both debt repayment obligations and creditors' right to seek legal enforcement.

According to the expert, the main obstacle to negotiations is not financial but political or security-related. “If the issue is purely financial, that does not prevent the government from addressing its external debt and beginning negotiations with creditors,” he said.

Regarding the Financial Gap Law, the same source expressed hope that the government would complete and approve the legislation before 2028, and that discussions with the International Monetary Fund (IMF) would become clearer by then. Such progress would provide a framework for negotiations with creditors. He stressed that debt restructuring should remain a priority for successive governments and that the state should not continue appearing incapable, indifferent, or neglectful of its obligations.

If 2028 arrives without these reforms being completed, the suspension of debt repayment deadlines and accrued interest will likely be extended once more. Bondholders are unlikely to sit idle and simply forfeit their right to repayment. Had the previous extension not been granted, Eurobond holders would almost certainly have filed lawsuits against the Lebanese state to preserve their claims on both principal and interest.

Lawsuits still an option

Marwan Al-Qotob, a university professor specializing in financial law, told Nidaa Al Watan that extending the suspension period for the March 9, 2020 Eurobond payment is intended to facilitate orderly negotiations for restructuring Lebanon’s Eurobond debt.

He noted that while creditors still have the option to file lawsuits during the suspension period, they are no longer required to do so merely to preserve their legal rights. In most cases, creditors prefer negotiations over litigation because negotiations may offer greater financial returns.

Al-Qotob added that investment funds often purchase distressed Eurobonds at low prices specifically to profit from future recoveries. These funds thoroughly analyze the bonds before purchasing them and will likely seek negotiations in 2028, or pursue legal action if the Lebanese state neither initiates talks nor extends the legal deadline again.

Any such lawsuits would likely be filed before U.S. courts, as stipulated under the bond contracts governed by New York law. Al-Qotob also emphasized the urgency of addressing the sovereign default declared under Hassan Diab’s government in 2020, especially as Lebanon enters the seventh year since the financial collapse began.

The suspension decision

The Ministry of Finance's request, approved by the Cabinet on January 7, 2025, sought authorization to suspend Lebanon's right to invoke statute-of-limitations defenses against claims related to Eurobonds issued under the country's Global Medium Term Note Program.

The background dates back to March 7, 2020, when the Cabinet decided to suspend payment of the Eurobond installment due on March 9, 2020. On March 23, 2020, the government suspended payment on all foreign-currency Treasury bonds. At the time, deteriorating financial, economic, political, and security conditions made it impossible to implement a comprehensive restructuring plan.

According to the Ministry of Finance, New York law grants bondholders a six-year statute of limitations to claim principal and interest payments, starting from the due date of each installment. Additional limitation provisions are included in the bond issuance agreements themselves. These deadlines have been a source of concern for bondholders and financial institutions.

A narrow window for reform

Based on these circumstances, if the government succeeds in passing the Financial Gap Law before 2028, the likelihood of needing another extension decreases significantly. Such a development would place Lebanon on a genuine reform path and help the country emerge from a crisis that has already lasted longer than many comparable systemic crises.

For comparison, countries that experienced similar financial collapses, such as Greece, typically required no more than nine years to navigate their way out. Lebanon is rapidly approaching that threshold.