Fitch downgrades Ukraine to 'RD' – Default

Fitch Ratings. London. 13 Aug 2024.

Fitch Ratings has downgraded Ukraine's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to 'RD' from 'C'. Fitch typically does not assign Outlooks to sovereigns with a rating of 'CCC+' or below.

Fitch has also downgraded the rating on the 2026 USD750 million Eurobond to 'D' from 'C' and affirmed the other foreign-currency bonds at 'C.'

Fitch has withdrawn the issue ratings of Ukraine's foreign-currency bonds as they are no longer considered to be relevant to the agency's coverage.

The downgrade reflects the following key rating drivers and their relative weights:

Default on Eurobond: The downgrade of Ukraine's LTFC IDR to 'RD' follows the expiration of the 10-day grace period for the 2026 USD750 million Eurobond coupon payment due on 1 August. This marks an event of default under Fitch's criteria with respect to the sovereign's IDR as well as the individual issue rating of the affected security. On 18 July, the Ukrainian parliament approved legislation that allows the government to temporarily suspend payments on state and state-guaranteed external commercial debt until a restructuring agreement with external commercial debt creditors is completed.

Distressed Debt Exchange Announced: On 9 August, the government formally launched a consent solicitation to restructure its outstanding USD19.7 billion sovereign Eurobonds and USD0.7 billion state-guaranteed Ukravtodor bonds. In Fitch's view, the exchange offer constitutes a distressed debt exchange (DDE) under its sovereign rating criteria, as it involves a material reduction in terms, including reductions in principal amount and interest, and extension of maturities.

Ukraine has an ESG Relevance Score of '5' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a key rating driver for Ukraine. As Ukraine deferred external debt payments in 2022, which Fitch deemed as a distressed debt exchange, and as Ukraine has missed a Eurobond coupon payment in August 2024, this has a negative impact on the credit profile.

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