On Aug. 13, Fitch Ratings service downgraded Ukraine’s credit rating to “restricted default” on a $750 billion Eurobond, which matures in 2026. Ukraine failed to make a coupon payment to the bond holders when it was due. The restricted default (RD), which is a real default, will surprise no one; indeed, it was inevitable, as Ukraine has no real underlying economy that generates tax revenues, and a goodly portion of its budget deficit is not paid for by Ukraine, but by the U.S. and the International Monetary Fund.
Fitch put Ukraine into default even after the unicameral Verkhovna Rada passed a law that permitted Ukraine to suspend its foreign debt until October 1. Fitch, one of the three leading Western credit agencies, was not impressed by Ukraine’s “law,” since it had issued the RD after Ukraine had unilaterally declared the law. Fitch stated unequivocally on Aug. 14: “This marks an event of default under Fitch’s criteria.” Fitch also downgraded some of Ukraine’s other bonded debt to “D,” indicating the debtor “has defaulted on obligations, and Fitch believes that it will generally default on most or all obligations.”