"The government of Ukraine today [Thursday, August 27] announced that it had reached an agreement with a representative group of creditors for a debt exchange that would result in a 20% reduction in principal and a postponement of principal repayments on $18 billion of government and government-guaranteed eurobonds. Fitch considers that this represents a Distressed Debt Exchange (DDE) under its criteria that results in material losses to bondholders and is being conducted in order to avoid default," Fitch said in a statement.
Domestically-issued, foreign-currency bonds are not included in the debt restructuring and are upgraded to align their ratings with the long-term, local-currency IDR, Fitch said. The foreign and local currency IDRs do not have outlooks.
Fitch also downgraded Ukraine's senior unsecured foreign-currency issue ratings to 'C' from 'CC,' while and senior unsecured foreign-currency, domestically-issued issue ratings were upgraded to 'CCC' from 'CC,' the statement said.
Ukraine's long-term local currency IDR was affirmed at 'CCC' and short-term foreign currency IDR at 'C'. Fitch also affirmed Ukraine's senior unsecured local-currency issue ratings and the Country Ceiling at 'CCC.'
Fitch says it does not envisage developments that would result in positive rating action at the present time.
"Completion of the debt exchange will result in the foreign-currency IDR being downgraded to 'RD'," it said.
Ukraine's ratings will be raised out of default shortly after Fitch determines that the exchange has been successful, which is typically measured by a minimum participation rate of 90%. The new rating will be consistent with Ukraine's prospective credit profile and debt structure.