Rating agencies S&P and Fitch on Friday downgraded Ukraine, now one notch from default, after a moratorium on its external debt was announced by its international creditors on Wednesday.
S&P therefore downgraded the ratings of long-term and short-term debt in foreign currencies from CC/C to SD (“selective default”).
“Given the announced terms of the restructuring and in accordance with our criteria, we consider this transaction to be (…) tantamount to a default,” S&P said in a press release.
Ukraine has secured a two-year moratorium on its foreign debt, estimated at $20 billion, from its international creditors.
For its part, Fitch has downgraded its long-term debt from C to RD (“restricted default”).
However, due to its nature, neither agency has attached an outlook to this rating indicating whether they intend to raise it, lower it, or keep it.
A country is considered to be in default when it is unable to meet its financial obligations to its creditors, which may be sovereigns, financial institutions (International Monetary Fund, World Bank, etc.) or investors in the financial markets. The non-compliance is called partial when the state fails to pay part of its obligations.
A group of Western creditors including France, the United States, Germany, Japan and the United Kingdom agreed to a postponement of interest payments on Ukraine’s debt on July 20, following a request from Kyiv, and urged other bondholders to do the same.
Ukraine’s economy has collapsed since the start of the war with Russia that began on February 24 and could see a 45% collapse in GDP this June, according to the latest World Bank estimates.
According to calculations by the Bloomberg agency, measures to postpone the payment of Ukraine’s bonds could save at least $3 billion over two years.