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Fitch and S&P downgrade Ukraine to 'SD' and 'RD' due to deferment of eurobond payments
KYIV. Aug 13 (Interfax-Ukraine) – The international rating agency Fitch Ratings on Saturday night downgraded Ukraine’s foreign-currency long-term issuer default rating (IDR) from "C" to "RD" (restricted default), while the Standard & Poor’s agency downgraded Ukraine’s foreign-currency long-term and short-term ratings from "CC/" to "SD/SD" (selective default).
"Consent solicitation to defer Ukraine’s external debt repayments for two years was agreed by the requisite share of bondholders and became effective on August 11. Fitch deems this completion of a distressed debt exchange [DDE] and has therefore downgraded the LTFC IDR to ‘RD’ and the affected instruments to ‘D’, both from ‘C,’" Fitch explained its decision.
"Given the announced terms and conditions of the restructuring, and in line with our criteria, we view the transaction as distressed and tantamount to default," S&P said.
The agency also downgraded restructured eurobond issue ratings to "D" from "CC" and Ukraine’s local currency ratings from "B-/B" to "CCC+/C" and the national scale ratings from "uaBB-" from "uaBBB-."
In addition, S&P issued a negative outlook on the local currency rating, reflecting its view that war-induced macroeconomic and fiscal pressures could weaken the government’s ability to meet its hryvnia-denominated debt obligations.
The agency also affirmed Ukraine’s long-term local currency IDR at "CCC-," short-term IDR at "C" and country ceiling at "B-," with one of the domestic currency issues maturing in 2023 not included in exchange, even upgraded to "CCC-."
Both Fitch and S&P announced an expected imminent upgrade of Ukraine’s foreign currency rating to a level in line with the prospects for debt service payments under its new terms.
S&P said once the restructuring of commercial foreign currency debt comes into effect, we can consider the default to be settled and the rating could be upgraded from "SD." They tend to assign "CCC" or "B" ratings to most sovereigns emerging from default, depending on post-default credit factors, including new government debt terms.
As reported, on July 20, Ukraine proposed to holders of eurobonds from August 1 to defer all payments on them and maturities for two years, while maintaining the current rates of return. At the end of this period, interest can be paid immediately or capitalized.
