After A Russian Sovereign Default, Over 100 Issuers Are Likely To Follow

Russia’s sovereign rating, and that of twenty-six issuers is a C, signifying likely default.

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Not only will Vladimir Putin be remembered as Vlad the Invader, he will also have the dubious honor of presiding over imminent Russian defaults and the devastating unemployment that is likely to follow. Over a week ago, I wrote that imminent Russian defaults would lead to a Russian economic crisis worse than in 1998. Sadly, I now see even more signs to support my view.

The cascade of downgrades has been intense since Putin’s war against Ukraine began. Between February 25 – March 15, FitchRatings has had about 180 downgrade ratings actions of Russian sovereign, municipal, financial institution, and corporate issuers, many of them downgraded at least twice. These downgrades are significantly increasing the cost of borrowing for these issuers, and in many cases, are already leading to companies firing employees.

On March 8, Fitch downgraded the Russian sovereign to C, which signifies likely default. If tomorrow, March 16, the Russian treasury pays its US Dollar Eurobond coupons in rubles, this constitutes a sovereign default, on the expiration of the 30-day grace period. After the sovereign defaults, the next issuers that are likely to follow are the six government related entities, as well as twenty local and regional government issuers that are rated at C like the sovereign. The vast amount of other Russian issuers are at CC, just a couple of notches above default.

Credit ratings and their meaning.

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Just in the last three days, FitchRatings analysts have been very busy. They have downgraded 95 issuers, from every sector of the economy and municipal issuers from all over the country, to CC (probable default) and to C (likely default).

· March 14 Six insurers downgraded to CC