OREANDA-NEWS. Fitch Ratings has downgraded the Ukrainian City of Kyiv's Long-term foreign currency Issuer Default Rating (IDR) to 'D' (Default) from 'C'. A full list of rating actions is available at the end of this rating action commentary.

Under EU credit rating agency (CRA) regulation, the publication of International Public Finance reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations.

Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. In this case the deviation was caused by the missed payment on the city's eurobond.

KEY RATING DRIVERS
The following are the key drivers for today's rating action and their relative weights:

HIGH

The downgrade of Kyiv's Long-term foreign currency IDR follows missed payment on the city's USD250m eurobond and the subsequent activation of the cross default clause on the USD300m eurobond. The city introduced an interim moratorium on any payments to its eurobond holders on 6 November 2015. According to the original schedule Kyiv's USD250m eurobond final maturity date was 6 November 2015 and its USD300m eurobond 11 July 2016.

Fitch treats the introduction of the interim payment moratorium on the city's eurobonds as defaults in accordance with its distressed debt exchange (DDE) criteria, leading to today's downgrade of the city's Long-term and Short-term foreign currency IDRs to 'D' from 'C'.

The introduced payment moratorium will be valid until the eurobonds' conditions are amended and the exchange offer accepted. The right for the city to suspend the repayment of its eurobonds was granted by Ukraine's parliament in May 2015. The city was mandated to extend the maturity of its external debt as part of a broader exercise to support Ukraine's public sector finances and external liquidity following the introduction of the IMF's Extended Fund Facility for Ukraine in March 2015.

Additionally, the City of Kyiv extended the maturities of its domestic bonds, which led to the recent downgrade of its Long-term local currency IDR (see 'Fitch Downgrades Ukraine's City of Kyiv Local-Currency IDR to 'RD'' dated 8 October 2015 at www.fitchratings.com). Prior to that Ukraine had missed the payment on its eurobond, which led to a recent sovereign downgrade (see 'Fitch Downgrades Ukraine's Foreign-Currency IDRs to 'Restricted Default'' dated 6 October 2015 at www.fitchratings.com).

As the city's all four outstanding bond obligations are in default, the Long-term local currency IDR has also been downgraded to 'D' from 'RD'. Simultaneously Fitch has withdrawn the City of Kyiv's Short-term foreign currency IDR as it is no longer considered by Fitch to be relevant to the agency's coverage because the city is no longer issuing short-term external debt.

MEDIUM

Fitch expects Kyiv's budgetary performance to remain volatile due to the overall weakness of the sovereign's public finances, lower predictability of fiscal policy and short planning horizon, all exacerbated by a negative macro-economic trend. Fitch expects Ukraine's economy to contract 10% in 2015, negatively affecting the city's fiscal capacity.

RATING SENSITIVITIES

Fitch will review the city's ratings once the debt exchange is completed and sufficient information is available on Kyiv's credit profile. Kyiv's Long-term foreign- and local currency IDRs will be upgraded after Fitch determines that the exchange has been accepted. The new ratings will be consistent with the city's prospective credit profile. However, the ratings will likely remain low, given high country risks and Ukraine's 'CCC' Country Ceiling.

The rating actions are as follows:
- Long-term foreign currency IDR: downgraded to 'D' from 'C'
- Long-term local currency IDR: downgraded to 'D' from 'RD'
- Short-term foreign currency IDR: downgraded to 'D' from 'C' and withdrawn
- National Long-term rating: downgraded to 'D(ukr)' from 'RD(ukr)'
- Senior unsecured eurobonds (ISIN XS0233620235, US225407AA34): downgraded to 'D' from 'C''
- Senior unsecured eurobonds (ISIN XS0644750027, US50154TAA34): downgraded to 'D' from 'C''
- Senior unsecured domestic bonds: affirmed at 'D'/'D(ukr)'.