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Denis Sergienko • 2022-08-18

Fitch and S&P: Ukraine Cut to Default

Fitch and S&P: Ukraine Cut to Default

Creditors said their “OK” to debt-payment delay until 2024 while Fitch and S&P cut the nation’s rating from C to RD and CC to SD accordingly.

The majority of Ukrainian bondholders failed to receive payment and agreed to wait for the next 2 years until 2024. As a result, both S&P Global Ratings and Fitch Ratings downgraded the nation's rating to default.

At the same time, UAH (Ukrainian national currency) has got a lower foreign currency rating. It was decreased to the level of “selective default” also known as SD (earlier, the asset had the CC rating). The initial downgrade was launched by S&P followed by the rating cut shortly performed by Fitch. As a result, the UAH rating was lowered to “restricted default” or RD for short. Meanwhile, bondholders have already approved the plan to restructure the debt making it possible for the country to save around $5.8 billion.

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What Happened?

As stated by the S&P officials, they have been viewing the transaction as “tantamount to default and distressed”. At the same time, the geopolitical situation and the current conflict have led to extreme fiscal, macroeconomic and external pressure.

Despite the rating downgrade and debt delay that constituted a distressed-debt exchange, Fitch found it possible to upgrade the Ukrainian broader foreign rating letting it reach the CCC level

Investors agreed on the payment delay. They have deferred coupon and principal payments until 2024. By the way, investors hold around 75% of all country’s foreign bonds with a total worth around $19.6 billion. Furthermore, the majority of investors and bondholders accepted a request to make changes to the current payment terms relying on so-called GDP warrants. They are closely connected with Ukrainian economic growth perspectives.

What Are the Payment Guarantees?

The main thing that keeps investors feeling safe is the fact that the process is backed and supported by key Ukrainian partners including the United States. What’s more, the debt restructuring plan gained support from the International Monetary Fund.

The bad news is that the country today requires cash for literally every need from paying pensions to providing civil and military financial support.

The Bottom Line

It seems like it is not the best time to trade exotic currency pairs. The safest and most stable way is to focus on major currency pairs like EUR/USD. Investors who still want to go beyond traditional options can pay attention to other major pairs like USD/JPY or XAU/USD.

S&P still reserved a chance for UAH to get a higher rating after the restructuring plan is approved and implemented. It will give the nation a chance to increase its long-term foreign-currency rating making it possible for the altered bond terms to meet bondholders’ expectations. However, for now, both S&P and Fitch express their negative outlooks on the Ukrainian national currency mainly due to fiscal and macroeconomic stress.