Ratings firm Moody's cut Ukraine's sovereign debt rating to one notch above default Tuesday, saying creditors will be forced to take deep losses in a debt restructuring.
"The key driver of the downgrade is the likelihood of external private creditors incurring substantial losses as a result of the government's plan to restructure the majority of its outstanding Eurobonds" and other debt, Moody's Investors Service said.
Ukraine's long-term issuer and government debt ratings were downgraded to Ca from Caa3, and the outlook remained negative, the firm said.
Also included in the government's debt restructuring plan is the external debt of state-guaranteed entities and selected other state-owned enterprises, and the Eurobonds issued by the capital city of Kiev.
Moody's said the debt restructuring was aimed at providing $15.3 billion of the four-year, $40 billion bailout arranged by the International Monetary Fund and other multilateral and bilateral creditors for Ukraine, which is fighting a war with pro-Russian separatists in the east.
The IMF approved $17.5 billion for the bailout on March 11, in exchange for the government's successful implementation of economic, budget and monetary reforms.
Crucial to the program is a restructuring of the country's debt. Kiev says it wants a voluntary deal with creditors, but some have already expressed opposition.
"Although negotiations over the specific details of the restructuring are only now getting underway, Moody's believes that the likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100 percent," the ratings firm said.
The outlook for the country's rating remained negative.
Moody's said that Ukraine's government and external debt will remain at very high levels even if it successfully implements reforms and cuts its debt burden.
"These solvency challenges are the key reason for maintaining a negative outlook on the government's downgraded ratings."
The Moody's ratings cut came as Ukraine appealed to the Group of 20 for more financial aid. Finance Minister Natalie Jaresko said in London on Tuesday that she had asked the major economic powers "to continue and increase the support for Ukraine."
Moody's noted that Ukraine's gross domestic product contracted 6.9 percent in 2014. The IMF estimates that Ukraine's debt-to-GDP ratio will rise to 94 percent this year.