Ukraine's bond rating falls as Russia refuses deal

KIEV, Ukraine, March 25 (UPI) -- A downgrade in Ukraine's bond-issuing rating coincides with a debt restructuring program and suggestions the country may soon default on its obligations.

"Although negotiations over the specific details of restructuring are only now getting underway, Moody's believes that the likelihood of a distressed exchange, and hence a default on government debt taking place is virtually 100 percent," Moody's Investor Services said Tuesday in announcing Ukraine's downgrade from Caa3 status to Ca, the second-lowest grade and one grade above default. Finance Minister Natalie Jaresko said Ukraine had no alternative but to proceed with debt restructuring negotiations with creditors, and the implied understanding foreign private lenders will incur substantial losses instead of expected returns on the bonds they hold. Russia holds a $3 billion bond due for a December payment, and Moscow has repeatedly said it expects to be paid in full, noting it is not a private creditor and will not participate in negotiations.

She added the Kiev government must follow orders of a $15.3 billion debt restructuring program ordered in an International Monetary Fund rescue plan intended to provide $17.5 billion if Ukraine can meet its conditions.

"It is our hope that all of our sovereign bond holders will come to the table and try and find a sustainable solution to Ukraine's debt problem. We hope for creditor negotiations to be very transparent, we don't see any other opportunity or path right now."

The military conflict in eastern Ukraine has plunged Ukraine into recession. Economic output declined by 15 percent in the last quarter of 2014 and is expected to fall another 11 percent in the first quarter of 2015. Its inflation rate currently stands at 28 percent.