Fitch, S&P lower Ukraine ratings to default due to int'l bond payments freeze
MOSCOW. Aug 15 (Interfax) - Fitch Ratings has downgraded Ukraine's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'RD' or restricted default from 'C', the agency said in a press release.
S&P Global Ratings said it had lowered its FC long-term and short-term sovereign credit ratings to 'SD/SD' or selective default from 'CC/C.
"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 said in the commentary to its decision. 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'," it said.
"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," said S&P.
S&P also lowered issue ratings on the restructured Eurobonds to 'D' from 'CC' and local currency (LC) ratings to 'CCC+/C' from 'B-/B' and its national scale ratings to 'uaBB-' from 'uaBBB-'.
S&P also gave a negative outlook on the LC rating, reflecting its view that macroeconomic and fiscal stress may weaken the government's ability to stay current on its local currency debt.
Fitch affirmed Ukraine's Long-Term Local-Currency IDR at 'CCC-', Short-Term IDRs at 'C' and Country Ceiling at 'B-'. It upgraded the local-law foreign-currency issuance due 2023 that was not included in the exchange to 'CCC-' following completion of the DDE.
Both Fitch and S&P said that Ukraine's ratings could be raised to a level appropriate for its debt service payment prospects on a forward-looking basis. "Upon the FC commercial debt restructuring taking effect, we could consider the default as cured and the rating could be raised from 'SD'. We tend to rate most sovereigns emerging from default in the 'CCC' or 'B' categories depending on post-default credit factors, including the new terms of government debt," S&P said in this regard.
Ukraine on July 20 asked international bond holders to freeze all payments and current interest rates on them for two years starting on August 1. Interest on the bonds can be paid immediately after the two years are up or capitalized. The Ukrainian Finance Ministry said on August 10 that Ukraine had received the necessary consent to those terms from bond holders. It said Ukraine had 13 international bond issues outstanding worth $17.26 billion and EUR 2.25 billion at face value.
Ukraine was due to redeem three bond issues totaling $3.02 billion by July 2024, including $912.35 million by September 1, 2022, $1.36 billion by September 1, 2023 and $750 million by February 1, 2024. Interest on these and the 10 other issues will be around $3 billion over the 24 months, at current exchange rates.