Restructuring Lebanese Sovereign Debt: Tackling the Holdout Problem

12 Pages Posted: 8 May 2020

See all articles by Brenda Luo

Brenda Luo

Duke University, School of Law

Chris Smith

Duke University, School of Law

Alex Xiao

Duke University, School of Law

Date Written: April 13, 2020

Abstract

Lebanon can threaten to take the following three actions to restructure its debt and weaken the position of a potential holdout creditor, such as the Ashmore Group, that holds more than 25% of the outstanding debt.

First, unilaterally amend the terms of the Fiscal Agency Agreement pursuant to Para. 23.1 to allow bondholders representing a simple majority of the outstanding debt to amend non-core terms, contrary to the 75% required to pass an extraordinary resolution.

Second, initiate the debt restructuring through a debt exchange program with an exit consent that requires participating bondholders to vote to amend the two non-core terms in the Fiscal Agency Agreement: (1) amend the forum selection clause to ensure that in the event of default, the creditor may only bring a lawsuit against the debtor in a Lebanese court (para. 8.3); (2) remove the pari passu clause (para. 3).

Third, the Lebanese Parliament enacts a law effectively accomplishing that (1) the New bonds are senior to the Old Bonds; (2) the government may make selective payments on its senior debt until they are paid in full without resulting in default on junior claims; (3) successful creditor-litigants have the obligation to apply the proceeds of a successful judgment against Lebanon to senior creditors.

In the event that Lebanon fails in these three actions, Lebanon can still rely on the necessity doctrine as an affirmative defense.

Keywords: Lebanon, Sovereign Debt Restructuring, Collective Action Clause, Exit Consent, Necessity Dotrine, Local Law Advantage

Suggested Citation

Luo, Brenda and Smith, Chris and Xiao, Zixuan, Restructuring Lebanese Sovereign Debt: Tackling the Holdout Problem (April 13, 2020). Available at SSRN: https://ssrn.com/abstract=3575063 or http://dx.doi.org/10.2139/ssrn.3575063

Brenda Luo

Duke University, School of Law ( email )

Durham, NC
United States

Chris Smith

Duke University, School of Law ( email )

Durham, NC
United States

Zixuan Xiao (Contact Author)

Duke University, School of Law ( email )

Durham, NC
United States

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