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RA Fitch Downgrades Ukrainian Railway's FC IDR to 'RD'; Upgrades to 'CCC'

March 28, 2016 | Cbonds

Fitch Ratings has downgraded Public Joint Stock Company Ukrainian Railway's (Ukrainian Railway) Long-term foreign currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'C', following completion of the company's Eurobonds exchange. The rating is then upgraded to 'CCC'.

Following the exchange, Fitch had withdrawn the Long-term foreign currency rating 'C' on Shortline Plc's USD500m loan participation notes (LPNs) due 2018. Simultaneously the agency has assigned 'CCC' to Shortline Plc's new USD500m LPNs due 2021 that were issued in exchange to the original 2018 LPNs.

A full list of rating actions is available at the end of this rating action commentary.

Ukrainian Railway's Long-term local currency IDR of 'RD' and National Long-term rating of 'RD (ukr)' are unaffected.

KEY RATING DRIVERS

The downgrade follows the completion of the restructuring of Ukrainian Railway's USD500m Eurobonds due 2018 structured via Shortline Plc's LPNs. In accordance with Fitch's distressed debt exchange (DDE) criteria, a DDE is deemed to have occurred, among others, if a restructuring imposes a material reduction in terms (including extension of maturity) compared with the original contractual terms of an entity's financial obligations.

The restructuring terms included a maturity extension to 15 September 2021 from 21 May 2018; coupon step-up to 9.875% from 9.5%; and an amortisation schedule of principal with 60% of the principal to be repaid in 2019, 20% in 2020 and 20% in 2021. Fitch views that the coupon step-up does not fully compensate the extension of maturity so we consider that our DDE criteria have been met.

The upgrade of Ukrainian Railway's Long-term foreign currency IDR to 'CCC' indicates that Ukrainian Railway has successfully completed the exchange of Shortline's LPNs, leading to a lengthening of the company's external debt maturity profile, thereby reducing refinancing risks. The company remains current on foreign currency loans from international financial institutions - EBRD, European Investment Bank and Korea Eximbank.

The exchange of Ukrainian Railway's Eurobonds was part of Ukraine's (CCC/C/CCC) state debt restructuring as part of IMF's Extended Fund Facility programme. This reflects the ongoing linkages between Ukrainian Railway and its sponsor, Ukraine. Therefore the agency continues to view Ukrainian Railway as a credit-linked public-sector entity (PSE) as per Fitch's PSEs rating criteria (see Fitch Withdraws Ukrzaliznytsia's Ratings; Rates Ukrainian Railway 'C'). Ukrainian Railway's foreign currency IDR is equalised with that of the sovereign.

The notes' rating is equalised with Ukrainian Railway's Long-term foreign currency IDR, reflecting Fitch's view that default risk on the notes is the same as Ukrainian Railway's other foreign currency senior unsecured obligations. The notes benefit from the suretyship agreement made between Shortline and Ukrainian Railway.

RATING SENSITIVITIES

As Ukrainian Railway's Long-term foreign currency IDR is equalised with that of its sponsor, Ukraine, it will likely mirror any rating action on the sovereign's Long-term foreign currency IDR.

Adverse changes to the company's ability and capacity to service its foreign liabilities would lead to a downgrade of the Long-term foreign currency IDR.

The rating on Shortline Plc's LPNs is equalised with Ukrainian Railway's Long-term foreign currency IDR therefore will move in tandem with Ukrainian Railway's Long-term foreign currency IDR.

Fitch will also review and re-rate the company's local currency IDR and National Long-term rating once the company has completed its domestic debt restructuring and information is available on its post-restructuring credit profile.

The rating actions are as follows:

Public Joint Stock Company "Ukrainian Railway"
Long-term foreign currency IDR downgraded to 'RD' from 'C' and subsequently upgraded to 'CCC'
Short-term foreign currency IDR downgraded to 'RD' from 'C' and subsequently upgraded to 'C'

Shortline Plc
USD500m LPNs (ISIN XS0934134312, US825262AA68) Long-term foreign currency rating 'C' withdrawn

USD500m LPNs (ISIN XS1374118658, XS1374118906) Long-term foreign currency rating assigned at 'CCC'

Company: Ukrainian Railway

Full company nameUkrainian Railway
Country of riskUkraine
Country of registrationUkraine
IndustryTransportation

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