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Fitch Ratings downgraded Ukraine's credit rating to C from CC after the government signed a preliminary agreement with a group of creditors to restructure $20 billion in debt.
Fitch said the cut to Ukraine's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) reflects its opinion that the 37% nominal haircut on Ukraine's outstanding international bonds agreed on July 22 "marks the start of a default-like process."
"In Fitch's view, the reported agreement with external commercial creditors constitutes a distressed debt exchange (DDE) under its sovereign rating criteria, as it involves a material reduction in terms, including reductions in principal amount and interest, and extension of maturities," the rating agency said.
On July 22, Ukraine has reached a preliminary agreement with a group of international creditors who agreed to write off more than a third of the nominal value of the debt owed them, saving the country $11.4 billion over the next three years.
The government reached the agreement, which marks the first-ever full-scale debt restructuring carried out amid a full-scale war, with investors controlling 22% of the bonds, and investors with an additional 3% also indicating they will support the deal.
Under the terms, the government achieved a 37% haircut on the nominal amount of the bonds. It will now issue two series of bonds to replace the existing ones, including one maturing between 2029 and 2036 and a series maturing in 2030-2036. Some of the bonds would pay a 1.75% coupon starting in 2025, and as much as 7.75% starting from 2034.
