Fitch Lowers Ukraine's Rating on Debt Restructing Deal

Ratings agency Fitch has lowered its rating for Ukraine saying the debt restructuring deal Kiev struck with a group of creditors was tantamount to default.

Fitch lowered Ukraine's rating of long-term public debt from "CC" to "C," after the deal was announced Thursday because it led to major losses for the bondholders.

"Fitch considers that this represents a Distressed Debt Exchange (DDE) under its criteria that results in material losses to bondholders and is being conducted in order to avoid default," the agency said in a statement released late Thursday.

The accord struck  between Kiev and  Franklin Templeton and three other U.S. financial groups calls for a 20 percent "haircut" to the face value of the bonds they hold -- nearly half of the $19 billion (16.8 billion euros) in commercial debt under review.

Thursday's agreement saves Ukraine $11.5 billion but is still short of the target set by the International Monetary Fund.

While the "haircut" was far less than the 40 percent initially sought by Kiev, the compromise deal with creditors was vital to Ukraine's efforts to secure  $15.3 billion (13.7 billion euros) in savings on total foreign debt over the coming four years.

Restructuring was a mandatory part of a broader $40 billion global rescue package that the IMF patched together at the start of the year.

Though the default-averting accord with lenders allows Ukraine continued access to international credit markets, Fitch's downgrade is likely to increase costs of additional borrowing.

The painful talks lasted for five months and saw both the IMF and Washington put immense pressure on bondholders to accept short-term losses in return for keeping Ukraine's pro-Western leaders from being forced into resuming their reliance on Russia.

Ukraine's economy is expected to shrink nearly 10 percent this year due in part to the loss of key coal and steel mining factories in the pro-Russian separatist east.