S&P Downgrades Ukrzaliznytsia’s Credit Rating To ‘CC’ With Negative Outlook

Standard & Poor's Ratings Services, an international credit rating agency, has lowered its long-term foreign- and local-currency corporate credit ratings on the State Railway Administration (Ukrzaliznytsia) from ‘CCC-’ to ‘CC’ with a negative outlook, the Interfax Ukraine news agency reports.

"We also lowered our issue ratings on the senior secured loan participation notes due 2018 and issued by financing vehicle Shortline PLC to 'CC' from 'CCC-,'" the rating agency said.

According to the rating agency, the rating action reflects the Ukrainian government's announcement that it will restructure its foreign-currency commercial debt, including Ukrzaliznytsia’s loan participation notes, worth USD 500 million.

"Under our criteria, we would expect to classify this restructuring of the notes as tantamount to default. In our view, therefore, the default of Ukrainian Railways' foreign currency debt is a virtual certainty," the rating agency said.

In addition, as part of the rating action, Standard & Poor's has revised down its assessment of the likelihood that the Ukrainian government would provide timely and sufficient support to Ukrzaliznytsia in the event of financial stress to "moderately high" from "high." "We now consider potential support from the Ukrainian government to Ukrzaliznytsia as more doubtful than previously," the rating agency said.

In addition, Standard & Poor's said that the rating action reflects Ukrzaliznytsia's significant capital-expenditure requirements to upgrade and renew its infrastructure and fleet. According to the rating agency, recent tariff increases should help the company to partly mitigate falling cargo and passenger traffic resulting from the deteriorating economic environment.

The negative outlook on Ukrzaliznytsia reflects the likelihood that the rating agency will lower its long-term ratings on the company to 'SD' (selective default) and lower the issue rating on its USD 500 million loan participation notes to 'D' (default) when the restructuring is completed, the rating agency said.

On 10 April 2015, Standard & Poor's lowered its long-term, foreign-currency sovereign credit rating on Ukraine to 'CC' from 'CCC- following the Ukrainian government’s announcement that it intended to restructure its foreign currency commercial (Eurobonds) debt stock.

At the same time, the rating agency affirmed Ukraine’s long-term, local-currency sovereign credit ratings on Ukraine at 'CCC+,' affirmed its short-term, foreign- and local-currency sovereign credit ratings at 'C,' and affirmed its national-scale rating at ‘uaB+’. The outlook is negative.