Senegal: Debt Treatment Negotiations Start, Bondholders Hire White & Case

• Senegal announced a debt treatment plan on September 1 to reduce budget payments and free up resources, addressing an estimated $44 billion central government debt by end-2025.
• The plan excludes CFA franc-denominated debts, aiming to protect the regional market but potentially shifting more burden onto external creditors.
• A group of Senegalese bondholders, advised by White & Case, demands an "economically justifiable, equitable, and sustainable" treatment with burden sharing among all financial creditors.
• Senegal has engaged Sodali & Co to identify and facilitate engagement with its international bondholders.
• The treatment of total return swaps, classified as external debt by the IMF, and the specific modalities of debt relief remain to be clarified through ongoing negotiations.

The decision regarding Senegal CFA franc debt exclusion introduces a complex dynamic into the ongoing Senegal sovereign debt restructuring.

Senegal has embarked on a significant initiative to address its substantial national debt, announcing a comprehensive "debt treatment plan" on September 1. This strategic move aims to alleviate the burden of payments on the national budget, thereby freeing up crucial resources for public investment and social programs. The central government's debt stood at an estimated 25,200 billion FCFA, or approximately $44 billion, by the close of 2025, according to an analysis by Libby George published by Reuters on September 29, 2026. This figure underscores the urgency of the nation's efforts to manage its financial obligations.

A critical component of Senegal's proposed plan involves determining which creditors will participate in the restructuring effort and to what extent. A notable decision by the government is the exclusion of debts denominated in CFA francs from the treatment framework. This choice is intended to safeguard the regional financial market, which plays a vital role in state financing, effectively concentrating the adjustment burden more heavily on Senegal's external creditors. Additionally, the nation faces an outstanding arrears amount of 1,956 billion FCFA as of March 2025, though this figure remains subject to audit.

In response to these developments, a group of Senegalese bondholders announced on September 11 their retention of White & Case as legal counsel. This group has publicly called for a debt treatment that is "economically justifiable, equitable, and sustainable," advocating for a broad sharing of the financial burden among all of the country's financial creditors. Concurrently, Dakar has engaged Sodali & Co to identify its international bondholders and facilitate dialogue, as reported by Reuters on September 29, highlighting the dual-track approach to these complex Senegal debt treatment negotiations.

The decision regarding Senegal CFA franc debt exclusion introduces a complex dynamic into the ongoing Senegal sovereign debt restructuring. While the government aims to protect the regional market, which accounts for nearly 58% of the debt service projected in the 2026 revised budget, this policy could lead external creditors to question the disproportionate effort expected from them. The International Monetary Fund (IMF) assesses debt sustainability by examining annual costs, state revenues, and new financing requirements, providing a framework against which any proposed treatment will be scrutinized.

Different categories of external creditors face varying implications. Data from 2024 indicates that multilateral organizations held approximately 40% of Senegal's external debt, with export credits accounting for an additional 9%. These types of creditors are typically afforded protection during debt treatment processes, suggesting that the actual portion of external debt available for renegotiation may be more limited than the total external debt figure implies. This distinction is crucial for understanding the scope of potential adjustments and the distribution of the Senegal debt burden sharing.

Further complicating the landscape is the treatment of certain financial instruments. By the end of 2025, Senegal had secured $1.26 billion in net financing through total return swaps, which are operations backed by local currency public securities. While the IMF classifies these as external debt, it has specified that their inclusion and treatment within any restructuring plan must be mutually determined by Senegal and its creditors. This ambiguity necessitates clear communication to prevent creditors from encountering unexpected commitments during the negotiation process, a key concern for legal advisors representing various creditor groups.

As Senegal debt treatment negotiations progress, several critical aspects remain undefined. No specific modalities for debt relief, such as deferrals of maturities, reductions in interest rates, or principal write-downs, have been finalized. While a deferral could offer temporary liquidity relief, any reduction in interest or principal would directly raise questions about the losses to be absorbed by lenders. Furthermore, the precise distribution of the burden among different creditor groups has yet to be announced by any of the parties involved.

Beyond bondholders, other significant categories of lenders, including bilateral creditors, are expected to participate in the process. Countries like France and China hold substantial positions among these bilateral lenders, and the terms they agree to could establish important benchmarks for demands placed on other creditors. The call from the White & Case Senegal bondholders for an "equitable" treatment underscores the broad expectation that all financial stakeholders contribute fairly to the resolution of Senegal's debt challenges.

Ultimately, while Senegal has initiated dialogue and presented its plan, the definitive terms of the debt treatment have not yet been established with its creditors. The ongoing discussions will need to address the complexities of burden sharing, the implications of the CFA franc debt exclusion, and the classification and treatment of all outstanding financial obligations to achieve a sustainable outcome for the nation's finances.

Lawyers advising creditors or investors in Senegalese sovereign debt must closely monitor the ongoing negotiations and the evolving terms of the debt treatment plan, especially regarding burden sharing and the legal implications of excluding CFA franc debt, to assess financial exposure and potential legal strategies.

Source: Original reporting via Reuters