S&P downgrades Ukrzaliznytsia to 'CC' following proposal to defer Eurobond payments

MOSCOW. Dec 12 (Interfax) - S&P Global Ratings has downgraded the rating of Ukrzaliznytsia, or Ukrainian Railways, from "CCC-" to "CC" in connection with the company's proposal to holders of Eurobonds maturing in 2024 and 2026 to defer all payments on them for 24 months.

The ratings agency sees a substantial weakening in Ukrzaliznytsia's ability to repay its debt, and it believes that a default on Ukrzaliznytsia's debt is nearly inevitable in accordance with S&P Global Ratings' methodology, Ukrainian media reported, citing the agency's press release published on its website.

The "negative" rating outlook reflects S&P's view that Ukrzaliznytsia is likely to implement its debt restructuring plans in the next few weeks, which, as per the agency's criteria, would be tantamount to a default.

S&P said that it would downgrade the rating to selective default ("SD") following the debt restructuring, but new debt terms and conditions would follow in the rating. The ratings agency said that it understood that the offer to defer servicing the debt did not include any write-offs, and it did offer some additional compensation and covenant assignments to the holders of Eurobonds in the form of a consent fee.

As noted, the decline in Ukraine's ability to provide further financial support weakens the liquidity position of Ukrzaliznytsia, though the deferral in servicing debt payments would allow the company to use liquidity to cover current operating and capital expenditures.

The matter specifically includes two issues of bonds due in July 2024, totaling $594.9 million, and due in July 2026, totaling $300 million, which is nearly 80% of Ukrzaliznytsia's total debt. Coupon payments are remitted semi-annually in July and January at fixed rates of 8.25% per annum on Eurobonds totaling $594.9 million, and 7.88% per annum on Eurobonds totaling $300 million.

The maturity date for the 2024 Eurobonds has been proposed for postponement from July 9, 2024, to July 9, 2026; and for the 2026 Eurobonds from July 15, 2026, to July 15, 2028. Applications are being accepted from the holders of 2026 Eurobonds until December 16, inclusive; and from the holders of 2024 Eurobonds until December 20, inclusive. A meeting has been scheduled for December 21 regarding the 2026 Eurobonds, and the results for both issues will be announced on the same day.