Moody's downgrades Ukraine

Moody's Investors Service said it downgraded the government of Ukraine's foreign- and domestic-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings to Caa3 from Caa2.

The agency said it also changed the outlook to negative from ratings under review. This concludes the review for downgrade that was initiated on Feb. 25.

The downgrades are driven by the increased risks to Ukraine's government debt sustainability from the Russian invasion leading to a longer military conflict than initially expected, which increases the likelihood of a debt restructuring and private-sector creditors suffering losses. Moody’s said.

“While Ukraine is benefitting from large commitments of international financial support, helping to mitigate immediate liquidity risks, the resulting significant rise in government debt is likely to prove unsustainable over the medium term. Concerns around the sustainability of such a high government debt burden may impede further access to official financing for the purposes of servicing commercial debt. At the Caa3 rating level, Moody's expects a recovery in the event of default of typically in the order of 65%-80%,” the agency said in a press release.

The negative outlook indicates the uncertainty about how long the war will last and its credit implications. The longer the fighting, the more likely the debt burden will increase and the more likely investors could recover less than 65%-80%, Moody’s warned.

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