What happened? The international rating agency Fitch downgraded Ukraine's long-term foreign-currency issuer rating from CCC to C (pre-default).
Source. The agency's website.
What does it mean? This decision is related to Ukraine's agreements with creditors to postpone payments on the national debt for two years.
Details. According to Fitch's rules, the pre-default state involves the restructuring of commercial debt with significant changes in the terms that are necessary to avoid a traditional default. Fitch considers this as a “distressed debt exchange” process.
In addition, Fitch forecasts the Ukrainian economy to contract 33% in 2022, with a shallow recovery of 4% in 2023. The forecast is influenced by ongoing war that limits seaport access and prevents commencement of any large-scale reconstruction.
Background. International creditors agreed to postpone payments on Eurobonds for Ukraine at the request of the Ukrainian government. Loan servicing was suspended until August 1, 2023, with the possibility of extending this term for one more year.
At the end of May, the Moody's agency also downgraded the long-term foreign and national currency ratings of Ukraine, as well as the ratings of priority unsecured debt in foreign currency from Caa2 to Caa3.