S&P cuts Ukraine's credit grade as default becomes 'virtual certainty'

Ukraine had its credit grade cut by S&P Global Ratings after the war-ravaged nation asked foreign creditors for permission to delay payments on its external debt after Russia’s invasion.

The country was downgraded to CC from CCC+ on Friday by S&P, which kept a negative outlook given the high probability that officials move forward with plans to restructure its foreign debt. The rating could be cut again by S&P to selective default if the government in Kyiv gets bondholders to agree to a two-year payment freeze and changes to coupons on its so-called GDP warrants by the middle of next month.

“We believe it is virtually certain that the Ukrainian government will stop payments on at least some foreign debt as currently documented,” S&P said in a Friday statement.

Ukraine could also enter default if it fails to make foreign-currency debt payments within applicable grace periods -- something S&P said is likely.

Ukraine filed its formal request to delay bond payments earlier in July, and the Finance Ministry said it “received explicit indications of support” for the plan from a select group of its biggest debt holders, including BlackRock Inc., Fidelity International, Amia Capital and Gemsstock Ltd. The Paris Club also supported a suspension of debt servicing.

Ukraine was downgraded by Fitch Ratings to C from CCC last week, with the company saying the government’s request constitutes a “default-like process.” Ukraine is rated Caa3 by Moody’s Investors Service.

While the government’s ability to meet hryvnia debt obligations is higher, indications that restructuring efforts will extend to the local debt could trigger a downgrade for the local-currency ratings, too, S&P said.“We consider Ukraine’s hryvnia-denominated government debt to be less vulnerable to nonpayment,” S&P said in the release.