S&P, Fitch lower Ukraine's foreign currency rating

BY Reuters | CORPORATE | 08/12/22 05:34 PM EDT

Aug 12 (Reuters) - Global rating agencies S&P and Fitch on Friday lowered Ukraine's foreign currency ratings, saying they consider the country's debt restructuring as distressed.

Earlier this week, Ukraine's overseas creditors backed the country's request for a two-year freeze on payments on almost $20 billion in international bonds, according to a regulatory filing, allowing the war-ravaged country to avoid a messy debt default.

S&P lowered Ukraine's foreign currency rating to "SD/SD" from "CC/C.

"Given the announced terms and conditions of the restructuring, and in line with our criteria, we view the transaction as distressed and tantamount to default," the ratings agency said.

Fitch downgraded the country's long-term foreign currency to "RD" from "C", as it deems the deferral of debt payments as a completion of a distressed debt-exchange.

S&P also said the macroeconomic and fiscal stress stemming from Russia's invasion of Ukraine may weaken the Ukrainian government's ability to stay current on its local currency debt and lowered the eastern European country's local currency rating to "CCC+/C" from "B-/B".

Battered by the war launched on Feb. 24, Ukraine faces a 35%-45% economic contraction in 2022 and a monthly fiscal shortfall of $5 billion. (Reporting by Bhanvi Satija and Aishwarya Nair in Bengaluru; Editing by Maju Samuel)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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