S&P cuts Moscow to SD

Standard & Poor's said it lowered the long-term issuer credit ratings on Moscow Oblast to SD from B-, indicating a selective default. The agency lowered the Russia national scale rating to SD from ruBBB- and affirmed its senior unsecured debt ratings (RUR 82.6 billion outstanding) at B-/ruBBB-. They remain on CreditWatch, with the implications revised to developing from negative.

The agency lowered the issuer credit rating to SD after the issuer failed to honor on Dec. 15 the RUR 5.2 billion put option on the bond placed by Moscow Regional Mortgage Agency (not rated), which it 100% owns.

The default was triggered by a court decision to freeze all payments on the bond as part of an investigation procedure against a third party, the bond arranger, the agency said.

"We view this case as exceptional," S&P analyst Valerie Montmaur said in a statement. "Although the oblast has always declared its willingness to service its put option, the amount of which is included in the oblast budget for 2008, and had accumulated cash reserves that exceeded the amount due before the due date, the legal impediment restricts its ability to honor its obligations."

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