So WTF are Eurobonds, Creditors and Coupons anyway?

Think of Lebanon as a problem child, a degenerate if you will, let’s call him Lebo.

Lebo has a spending problem. He has a job, but it doesn’t make him enough money and he needs to borrow a lot to finance his ridiculous lifestyle. After all, cars, alcohol, and drugs are expensive — also food and clothes and electricity.

Lebo, in addition to his job, has some valuable things that were passed down to him by old prudent family members. He owns some gold and some airplanes among other things. Luckily for Lebo, the family members that passed those assets down to him did not put him fully in charge of them, but gave them to Lebo’s main caretaker, the Central bank, let’s call him Uncle Riad. Now the central bank takes care of these assets and gives Lebo some of the money they generate.

Uncle Riad take care of the treasure and passes some of the proceeds to Lebo

Lebo being in need of more money than he makes from his job and that his assets generate, seeks to borrow. How does he borrow?

Through selling Eurobonds.

Eurobonds is just a fancy name for getting a loan. Lebo makes these pieces of paper called bonds, and sells them for billions and billions of dollars.

Why would anyone buy those pieces of paper? Because they come with very strong legal promises to be bought back by Lebo in the future, at a certain date of maturity, for the same price he sold them at.

In addition, Lebo promises to pay the buyers an annual fee (the coupon) until the maturity date is reached.

It goes something like this:

Lebo creates a piece of paper (the Eurobond) in the first year and sells itfor $1Bn

creates a piece of paper (the Eurobond) in the first year and sells itfor Lebo pays the people who bought the paper $100Mn in the second year

pays the people who bought the paper in the second year Lebo pays the people who bought the paper $100Mn in the 3rd year

pays the people who bought the paper in the 3rd year you get the idea

In the last year which is predetermined at the time of sale, let’s say the 10th year — maturity. Lebo buys the paper back from the people who bought it for the original $1Bn

That’s it.

There’s some more boring technical stuff, but you don’t need to know them.

Who the fuck are these people buying these papers? These are “the Creditors”.

Creditors are Lebo’s friends and family who, while in grave disagreement of his drug and alcohol habits, think that he will use the money to turn his life around, and maybe get a better job and maybe be able to pay them back the money. And they’re split into two types, local and international. Let’s call them Lebo’s Teta, and Lebo’s 3rd degree cousin Tony who lives in Abidjan

Lebo does this a few times, but always falls off the wagon. Also since starting the story the fucker went and got married and got himself a dozen children (these represent the citizens, and the bank depositors). As we all know, he has not turned his life around, and he can’t ask the family for more money anymore. He has a problem.

Let’s look at the size of this problem.

Lebo by the most optimistic estimates, has $30Bn in cash (held with Uncle Riad)

Lebo owes $43.5Bn — there’s more but that debt is in Lira, different story.

Now you might say, that’s not SO bad. But remember, Lebo still needs to pay for food, rent, etc. So he owes $43.5Bn, he has $30bn AND he has a family.

Wait, where the hell can a problem child with a drug problem get $30Bn to begin with?

Remember those dozen children he had? well most of them, work hard in Beirut, Dubai, Riyadh, London, etc, and give him money. Those $30Bn, are their savings. Again, it is more complicated than that, but the whole point of this post is to uncomplicate things.

Anyways, back to the immediate problem:

Let’s call that, the bond payments that are due in the short term. Out of the $43.5Bn owed, $3.2Bn are owed in 2020, $1.2Bn are owed in March 2020.

For the sake of simplicity, let’s say half is owed to Teta and half is owed to cousin Tony.