OREANDA-NEWS. Fitch Ratings has downgraded the City of Kyiv and the City of Kharkov's Long-term foreign currency Issuer Default Ratings (IDR) to 'C' from 'CC'. A full list of rating actions is at the end of this commentary.

Under EU credit rating agency (CRA) regulation, the publication of International Public Finance reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this in order to comply with their legal obligations.

Fitch interprets this provision as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status.

The next scheduled review date for the City of Kyiv was 18 September 2015 and for the City of Kharkov 23 October 2015. However, following the downgrade of Ukraine's Long-term foreign currency IDR on 27 August 2015 (see 'Fitch Downgrades Ukraine's Foreign-Currency Rtg to 'C' On External Debt Restructuring Announcement' dated 27 August 2015 at www.fitchratings.com) we have taken a similar rating action on the cities as they are rated at the same level as the sovereign.

KEY RATING DRIVERS
The Long-term foreign currency IDRs of the City of Kyiv and the City of Kharkov are constrained by the sovereign, in line with Fitch's criteria of 'International Local and Regional Governments Rating Criteria outside United States'. Under our criteria, a local or regional government can only be rated above the sovereign in exceptional circumstances.

The rating drivers of the cities' Long-term local currency IDRs are unaffected, leading to their affirmation.

RATING SENSITIVITIES
City of Kyiv

A sovereign downgrade or any adverse change leading to the partial or full containment of the city's ability and/or willingness to service its debt would lead to a downgrade

Positive rating action is currently unlikely. However, a sovereign upgrade along with sustainable restoration of the city's financial flexibility leading to withdrawal of material downside credit risks would lead to an upgrade.

City of Kharkov
A sovereign downgrade would lead to corresponding action on the city's IDRs. In the absence of a sovereign downgrade, significant deterioration of Kharkov's credit profile could also lead to negative rating action.

A sovereign upgrade could be reflected by the City of Kharkov's ratings provided that the city maintains a stable budgetary performance.

The rating actions are as follows:

City of Kyiv
- Long-term foreign currency IDRs: downgraded to 'C'
- Long-term local currency IDRs: affirmed at 'CC'
- Short-term foreign currency IDR: affirmed at 'C'
- Senior unsecured domestic bonds: affirmed at 'CC'
- Senior unsecured eurobonds: downgraded to 'C'

City of Kharkov
- Long-term foreign currency IDRs: downgraded to 'C'
- Long-term local currency IDRs: affirmed at 'CCC'
- Short-term foreign currency IDR: affirmed at 'C'.