ISTANBUL

Fitch Ratings said Tuesday that it downgraded Ukraine's long-term foreign currency issuer default rating to restricted default (RD) from ‘C.'

The rating agency said the move follows the expiration of the 10-day grace period for Ukraine's 2026 $750 million Eurobond coupon payment that was due on Aug. 1.

"On 18 July, the Ukrainian parliament approved legislation that allows the government to temporarily suspend payments on state and state-guaranteed external commercial debt until a restructuring agreement with external commercial debt creditors is completed," it said in a statement.

It noted that the Ukrainian government on Aug. 9 formally launched a consent solicitation to restructure its outstanding $19.7 billion sovereign Eurobonds.

"In Fitch's view, the exchange offer constitutes a distressed debt exchange under its sovereign rating criteria, as it involves a material reduction in terms, including reductions in principal amount and interest, and extension of maturities," it said.

Fitch's RD rating indicates an issuer has experienced an uncured payment default or distressed debt exchange on a bond, loan or other material financial obligation but has not entered into bankruptcy filings.

The agency, however, affirmed Ukraine's local currency issuer default rating at ‘CCC-‘ and said it expects Ukraine to continue to service its local currency debt, which will be excluded from a restructuring agreement.

It warned that Ukraine's long-term local currency issuer default rating could be downgraded to ‘CC' if there are increased signs of a probable default event on local currency debt from severe liquidity stress and reduced capacity of the government to access financing.