Moody’s downgrades Ukraine’s ratings to Caa3

New York, May 21:Moody’s rating agency has downgraded Ukraine’s foreign and domestic currency long-term issuer ratings and foreign currency senior unsecured debt ratings from Caa2 to Caa3, with a negative outlook.
“The downgrade of the ratings to Caa3 is driven by the increased risks to Ukraine’s debt sustainability from a more protracted military conflict, which increases the likelihood of a debt restructuring and losses being imposed on private-sector creditors,” Moody’s said on Friday. “Moody’s has also changed the outlook to negative from ratings under review.”
The rating agency said that it expects the Russian operation in Ukraine to be more protracted than initially assumed and forecasts that Ukraine’s real GDP will contract by around 35 per cent this year.
“At the Caa3 rating level, Moody’s expects a recovery in the event of default of typically in the order of 65-80 per cent,” the rating agency said, specifying that “the recovery by investors in the event of default could be lower than 65-80 per cent, which would be consistent with a rating below Caa3.”
Moody’s estimates that Ukraine’s financing needs this year will stand at around $50 billion (35 percent of 2022 GDP) and government debt will rise to around 90 per cent of GDP from around 49 percent at the end of 2021.