Moody's downgrades Ukraine's rating to Ca, probability of default at 100 percent

International ratings agency Moody's Investors Service has downgraded Ukraine's long-term issuer and government debt ratings to Ca from Caa3 with negative outlook, Moody's said in a press release.

International ratings agency Moody's Investors Service has downgraded Ukraine's long-term issuer and government debt ratings to Ca from Caa3 with negative outlook, Moody's said in a press release.

In addition, the probability of default is nearly 100 percent, Moody's said.

Ca is the last step on Moody's ratings scale.

"The key driver of Moody's decision to downgrade Ukraine's long-term government debt and issuer ratings to Ca is the government's plan to restructure the majority of its outstanding Eurobonds as well as other public sector external debt and the rating agency's expectation that private creditors will incur substantial economic losses as a result of the restructuring. The debt operation is intended to provide $15.3 billion of the four-year, $40 billion external financing package agreed with the IMF and other multilateral and bilateral creditors. The package was approved by the IMF Executive Board on March 11," the press release says.

"Although negotiations over the specific details of the restructuring are only now getting underway, Moody's believes that the likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100 percent. The bonds' recovery value will be determined by the terms of the debt exchange and is currently being discussed with creditors. The terms could include a grace period on principal repayments during the term of the IMF program, a reduction in the existing bonds' current coupons, which now average 7.1 percent, and a haircut on the outstanding principal," Moody's said.

"Moody's would consider moving the rating outlook to stable after the debt restructuring if it were to see a sustained normalization of the geopolitical situation in Eastern Ukraine, along with improvements in the country's external liquidity position. An upgrade would likely require several additional factors to be in place, including a positive policy track record of structural reforms, improved growth prospects and positive debt dynamics," the press release says.

"We would downgrade Ukraine's rating if bond holders were to incur higher losses than what is captured by the Ca rating following the planned debt restructuring, or any other default by the government," it continues.

"In a related rating action, Moody's also downgraded the issuer and debt ratings of the 'Financing of Infrastructural Projects' (Fininpro) to Ca/(P)Ca from Caa3/(P)Caa3 and maintained the negative outlook. Fininpro's debt is fully and unconditionally guaranteed by the government of Ukraine," Moody's said.

"Moody's also lowered Ukraine's country ceiling for long-term foreign currency debt to Caa3 from Caa2, and its country ceiling for long-term domestic currency debt and deposits to Caa2 from Caa1. Ukraine's country ceiling for foreign-currency bank deposits remains unchanged at Ca. All short-term country ceilings also remain unchanged at Not Prime (NP)," the agency added.

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