Ukraine Avoids Default with Bondholder Agreement

Ukraine has avoided default by reaching a preliminary agreement with bondholders, ensuring friendly relations and reworking $19.7 billion in bonds. A two-year payment moratorium on the bonds expires soon, with final approval from bondholders still pending. Ukraine faces imminent payment deadlines and a potential short-term default, while Fitch downgraded its credit rating.

Ukraine's finance minister, Serhiy Marchenko, announced on Friday that the nation has circumvented a default by securing a preliminary agreement with bondholders this week.

Marchenko highlighted the friendly relations formed with creditors, stating, "We avoided the default that factually we were told we were doomed to." This comes after Ukraine disclosed a preliminary restructuring deal for $19.7 billion in bonds, marking its second debt rework in a decade due to the Russian invasion.

The two-year payment moratorium on these bonds ends on Aug. 1. While bondholders need to finalize the deal, which is anticipated, the legal procedures may take weeks. Concurrently, Ukraine is due a $34 million coupon payment on its 2026 Eurobond on Aug. 1, with a 10-day grace period.

Similar to 2015, Ukraine might experience a short-term default, posing less long-term risk than an unmanaged default. This month, Ukraine's parliament approved a law to halt foreign debt payments, pending presidential assent.

Additionally, Fitch has downgraded Ukraine's credit rating deeper into default territory.