As Lebanon continues to grapple with its severe financial crisis, recent trends in Eurobond prices have highlighted a troubling reality: optimism regarding the country's future and its ability to successfully negotiate the restructuring of its external debt appears to have reached a limit. A report from Bank of America has further underscored the bleak prospects for bondholders, offering a grim outlook on how much they may recover when negotiations with the Lebanese government eventually begin.

According to the bank’s assessment, in the best-case scenario, bondholders could recover up to 25 cents on the dollar. However, the worst-case scenarios paint a far grimmer picture, with creditors potentially recovering no more than 10 cents per bond—one of the lowest recovery rates seen in global debt settlements. This stark forecast points to a growing lack of faith in Lebanon's ability to restore its economic stability and rebuild trust among its international creditors. Such projections suggest that hopes for the implementation of a comprehensive rescue plan are rapidly diminishing.

The cautious, and perhaps even pessimistic, sentiment surrounding Lebanon's financial future is largely attributed to the government's handling of its external debt crisis. A key issue is the upcoming forfeiture of interest payments in March, which will affect bondholders unless a resolution is reached. The Bank of America report also draws attention to this looming deadline, which is just two months away.

The Lebanese government, which has repeatedly promised a solution to the problem of interest payments, amounting to an estimated $12 billion, has failed to follow through on these promises. As a result, foreign funds holding Eurobonds are now expected to turn to the U.S. courts, filing lawsuits in New York to secure rulings that would protect their rights to these interest payments.

Some officials in Lebanon, however, believe that these foreign funds’ lawsuits won’t cause significant harm, as they will, at worst, ensure that the funds preserve their interest rights. These officials argue that this would not lead to any further losses for the state. Yet, they fail to consider that a significant portion of the Eurobonds are held by Lebanese banks. The question arises: how will these banks respond?

If Lebanese banks refrain from filing lawsuits like the foreign funds, they risk losing their rights—especially since a favorable ruling for other bondholders would give them priority in recovering the interest payments and, eventually, the principal. This would mean that Lebanese banks would lose out on rights that fundamentally belong to the country’s depositors, which is not within their remit to forfeit.

On the other hand, if the Lebanese banks do decide to pursue legal action similar to that of the foreign funds, the country will find itself entangled in a complex and damaging legal battle in U.S. courts. In this scenario, Lebanon would face both its local and international creditors in court, creating a further strain on its already fragile image. This additional layer of conflict is the last thing the country needs as it struggles to regain its financial footing.