Fitch Ratings, the international rating agency, downgraded on March 18, 2020 Lebanon’s long-term foreign currency Issuer Default Rating (IDR) from “C” to “RD” (Restricted Default), in addition to downgrading and withdrawing the March 9 bond issue to “D”, following the end of the seven-day grace period for the $1.2 billion Eurobonds that matured on March 9. However, the agency affirmed the short-term foreign and local currency IDR at “C”, the long-term local currency IDR at “CC” and the country ceiling at “CCC”. Fitch also affirmed and withdrew the ratings of the remaining Eurobonds at “C” and expects them to default later-on, as the government already announced that it intends to include them in the restructuring process.

It is worth highlighting that Prime Minister Diab had announced that the government would be prioritizing the funding of basic imports over debt payments in the light of the country’s dwindling FX reserves, and that, in this context, it will be negotiating with creditors to restructure its debt. The agency added that while Mr. Diab’s statement made no indication to whether local currency debt (above 100% of GDP) will be included in the restructuring process, Fitch believes that said restructuring is “highly probable” as the government’s statement indicated that the overall debt is unsustainable. Accordingly, and in the event a restructuring plan emerges for local currency debt, the long-term local currency rating would be downgraded from “CC” to “C” and would be further downgraded to “RD” in the event the government defaults on the local currency debt before any restructuring announcement.

Finally, the rating agency announced that a positive sovereign rating action would occur when Lebanon reaches an understanding with bondholders to restructure the long-term foreign currency debt and completes the restructuring process.