Standard & Poor's Ratings Services on July 9, 2015, lowered its long-term counterparty credit rating on Ukraine-based PrivatBank to 'CC' from 'CCC-'.

The outlook remains negative, S&P said in a statement.

S&P says that the negative outlook reflects its view that that nonpayment on eurobonds due in September 2015 and February 2016 is a virtual certainty.

The bank's 'C' short-term rating was affirmed.

S&P says that the downgrade follows PrivatBank's announcement on June 26, 2015, that it has made available a consent solicitation memorandum to holders of eurobonds due in 2015 and in 2016 regarding the amendment of the terms of two series of the eurobonds of PrivatBank. In particular, PrivatBank offers to extend the maturity of the eurobonds for $200 million due in September 2015 to 2018 and the eurobonds for $150 million due in February 2016 to 2021.

"We regard the planned extension as a distressed exchange offer and tantamount to a selective default, as per our criteria. This is based on our understanding that the investors would not receive the full value of the bonds on time as originally agreed," S&P said.

S&P says that it expects that nonpayment on eurobonds due in 2015 and 2016 is a virtual certainty. It also expects that the nonpayment will be a selective default ('SD')–-versus a general default--and that PrivatBank would continue to honor its other obligations as they come due, especially to its depositors within the limits allowed by the National Bank of Ukraine (NBU).

According to S&P, PrivatBank has initiated the extension of the eurobond maturities in light of the very difficult economic situation in Ukraine, as well as in accordance with the requirements of the NBU to increase its capitalization and ease pressure on the currency market of Ukraine.

"We have revised our assessment of PrivatBank's stand-alone credit profile (SACP) to 'ccc' from 'ccc+', reflecting the weakened creditworthiness of PrivatBank due to its deteriorated liquidity position. We now view the bank's liquidity as "weak" versus "moderate." Our revised assessment accounts for the bank's pronounced reliance on the NBU for liquidity assistance to address continuing deposit outflows. Our current assessment also reflects our view that the planned eurobond restructuring will have stifled investors' confidence, resulting in the bank having noticeably weaker liquidity than other Ukrainian banks. That said, we understand that PrivatBank is currently honoring its obligations to depositors," the statement reads.

S&P says it does not rate any debt issued by PrivatBank.

"We expect to view the consummation of a distressed exchange offer as a de facto default with respect to the securities involved. Once the distressed exchange offer has been confirmed, we would likely lower the ratings on PrivatBank to 'SD,'" S&P said.