Lebanon, one of the most indebted countries in the world, suspended payments on all $31.3 billion of its international 'eurobonds' this month, declaring that it could no longer repay them.
In analysis published on Tuesday, Morgan Stanley said debt relief of 100%-125% of Lebanon's annual economic output would be needed, though it would be far from simple.
The legal terms of its bonds make it vulnerable to Argentina-style 'holdout' investors derailing the process, while shifting the burden to domestic banks is not an option because they themselves have helped soak up the debt and would need recapitalising.
Raiding bank deposits of savers and firms as Cyprus did at the height of its crisis would be politically problematic, and getting support from the IMF or elsewhere in the Middle East may also be difficult in the current circumstances.
"We see little benefit of a piecemeal approach to debt restructuring, given the complex inter-linkages between the finance ministry, central bank and domestic banks," Morgan Stanley said in its analysis.
"Considering the subdued growth outlook, it makes sense to de-lever across the broad public sector."
It floated three restructuring scenarios - soft, medium or harsh - where eurobond holders would face either a 50%, 60% or 70% writedown on their bonds and see their payment dates pushed back either five years or to 2032 or 2037 via new bonds.
Combined with other tweaks it would mean the money bond holders get back - the recovery rate - will be lower than in many government debt restructurings around the world, but debt-to-GDP in Lebanon is also higher than most of those instances.
Morgan Stanley assigned a subjective 60% probability to the harshest restructuring scenario, but with the bonds dropping to as low as 12 cents on the dollar this week, even under that option they now look "attractive", it said.
"Bonds are trading even below the harsh restructuring scenario. However, a key issue is that the restructuring may settle only 1 - 2 years forward given complexities, which dents attractiveness a tad," it said.
However, "sub-15 (cents on the dollar) should look attractive on all measures".