Fitch Upgrades Ukraine to ‘CCC’
Fitch Ratings has upgraded Ukraine’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘CCC’ from ‘Restricted Default’.
The upgrade of the long-term foreign-currency IDR reflects Fitch’s assessment that Ukraine has normalised relations with a substantial majority of its external commercial creditors.
On 18 December, it was announced that 99% of investors supported the exchange of Ukraine’s outstanding GDP warrants, thereby clearing the 75% threshold for a complete exchange.
Combined with the successful completion of the sovereign and state-guaranteed debt bond restructuring in August 2024, Ukraine has now restructured 94% of its commercial external state and state-guaranteed debt.
Ukraine will exchange USD2.6 billion of outstanding GDP warrants (excluding the amount held directly or indirectly by the government) for new C-Notes at a ratio of 1.34x, which is USD1,340 per USD1,000 warrants.
The new C-Notes feature a step-up coupon rate rising from 4.0% to 7.25% by 2032, with amortisation in three instalments beginning in 2030. Holders that did not consent to the exchange will automatically receive USD1,360 in B-Notes per USD1,000 warrants, equally split between 2030 and 2034 maturities.
Ukraine’s GDP warrants were issued as part of its 2015-2016 Eurobond restructuring and designed to pay out when the country’s economic growth exceeds certain thresholds. Ukraine had missed a USD665 million payment on these warrants in early June.
“We have assigned a rating of ‘CCC+’ to the newly issued C-Notes, one notch above Ukraine’s ‘CCC’ LT FC IDR and the existing A- and B-bond ratings, reflecting their enhanced credit protection.
“The new C-Notes benefit from a loss reinstatement multiplier of currently around 2.1x (and accruing to up to 2.5x by 2030 based on calculations done by the ad hoc committee), meaning their notional value would more than double in any future restructuring.
“This compares favourably with the 1.57x multiplier for existing A- and B-Notes, which is set to expire in August 2026. The C-Notes also have enhanced voting protection”.
On 19 December, the EU agreed a new EUR90 billion, which is 50% of 2025 GDP, loan for Ukraine that would only need to be repaid in benign circumstances (if Ukraine received reparations from Russia).
Fitch said this would cover financing needs for more than a year, reducing near-term debt sustainability risks.
Ukraine’s ratings also reflect Ukraine’s Long-Term Foreign-Currency IDR of ‘CCC’ reflects substantial credit risk given of the war and its macroeconomic and fiscal effects.
These factors are balanced by a manageable near-term debt service profile, substantial FX reserves and significant support from the EU. Ukraine’s external commercial debt service payments will average USD0.9 billion in 2026-2028 and the first maturity on restructured Eurobonds is not due until 2029.
The higher long-term local-currency IDR reflects Ukraine’s continued service of local-currency debt, in line with our expectation of preferential treatment of local-currency debt obligations.
Only a small portion of local-currency debt is held by non-residents, with the majority held by domestic (mostly state-owned) banks and the National Bank of Ukraine.
This ownership structure limits the benefit of a local-currency debt restructuring by creating potential fiscal costs (including bank recapitalisation).
Despite current US-led efforts to reach a ceasefire and ultimately a negotiated settlement, key negotiation points remain reportedly unresolved, including potential territorial concessions or security guarantees. As a result, Fitch does not expect a near-term reduction in hostilities.
