Eurobond credit insured
to get $400 million indemnity

More payouts expected as

government declared total default

A payment of close to $400 million was ruled in favor of investors holding credit insurance on Lebanon’s Eurobonds according to a binding decision from a credit default swap (CDS) committee.

The payout is an indemnity after a payment suspension of $1.2 billion Eurobond due earlier this month. The exact value will be decided at an auction to settle the credit swaps, which will take place at a later date.

Earlier this month, the CDS committee, which includes a panel of traders, was asked to rule whether a credit event has occurred by the government’s failure to pay the $1.2 billion Eurobond. The CDS committee is known as the EMEA Credit Derivatives Determinations Committee. EMEA stands for the Europe, Middle East and Africa region.

Ramy Saadeh Senior Manager for Wealth and Investment Management at Banque BEMO said that the CDS are for the $1.2 billion Eurobonds while there are CDS for the remaining Eurobonds which have become in default following the announcement of the Ministry of Finance to discontinue payments on all outstanding bonds in foreign currencies.

Saadeh said that the holders of CDS are most likely foreign investors because few local banks have acquired CDS against their Eurobond holdings. In light of the high yields, there was an advantage for investors holding Eurobonds between March 2019 and October 2019 to insure their holdings with one-year CDS, he said.

CDS are complex financial tools and they could be also used for speculative trading on global markets.

A credit event is defined and its standard is set by the International Swaps and Derivatives Association (ISDA) which is a global trade organization for over-the-counter (OTC) derivatives. ISDA’s over 900 member institutions from 73 countries include international and regional banks, government entities, and other bodies involved in the derivative market.

Out of the nearly $31 billion outstanding Eurobonds, $12 billion are held by local banks, $5.3 billion by the Central Bank, $6 billion by individual investors and insurance companies, $7 to $8 billion by foreign banks.