Fitch downgrades Kyiv city bonds to C

The Fitch Ratings agency downgraded the long-term foreign currency issuer default rating of City of Kyiv (CITKIE) bonds to “C” from “CC”. The move comes a week after the agency downgraded the bond’s sovereign rating to “C” from “CC” on Aug. 27. Positive action on CITKIE’s rating is currently unlikely, but a possible future “sovereign upgrade – with sustainable restoration of the city’s financial flexibility leading to the withdrawal of material downside credit risks – would lead to an upgrade,” Fitch reported.

Fitch is the first of three ratings agencies to downgrade Kyiv’s rating after the Ukrainian government reached an agreement on its sovereign debt with creditors. S&P and Moody’s still have their ratings of Kyiv’s bonds a notch higher than Fitch, at “CC” and “Ca” respectively.

Roman Topolyuk: The downgrade of Kyiv’s sovereign and municipal bonds was pretty much expected after an agreement on Ukraine’s debt had been reached. The move is rather technical, and the ratings are set to worsen before they can get better. We do not expect other ratings agencies will follow Fitch’s lead, given that they already have applied the same rating for the municipal bonds as for sovereign paper. Negotiations on restructuring Kyiv’s Eurobonds with creditors are still continuing, and the terms might be similar to those set for sovereign Eurobonds, with a maturity extension of around five to seven being the key possible feature in the case of CITKIE.