‘The negative outlook reflects Moody's expectation that Ukraine's government and external debt levels will remain very high, in spite of the debt restructuring and plans to introduce reforms,’ the release, issued on Tuesday, said.
Additionally, Moody’s lowered Ukraine's ceiling for long-term foreign currency debt to Caa3 from Caa2, and the country’s ceiling for long-term domestic currency debt and deposits to Caa2 from Caa1, according to the press release.
The key driver of the downgrade is the Ukraine government's plan to restructure the majority of its outstanding Eurobonds, as well as other public sector external debt, according to the release.
Moody’s said it expects private creditors to incur substantial economic losses as a result of the restructuring.
“Although negotiations over the specific details of the restructuring are only now getting underway, Moody's believes that the likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100 percent,” the press release said.
Moody’s also noted that Ukraine's government and external debt will remain at very high levels even if economic, budget-debt and monetary reforms in the country are successful.
The Agency would consider moving the rating outlook to stable after the debt restructuring, if the geopolitical situation in Eastern Ukraine normalizes and the country's external liquidity position improves, the press release said.
