Russia's invasion of Ukraine triggered a flurry of credit rating moves on Friday, with S&P lowering Russia's rating to 'junk' status, Moody's putting it on review for a downgrade to junk, and S&P and Fitch swiftly cutting Ukraine on default worries.
Both countries' financial markets have unsurprisingly been thrown into turmoil by this week's events, which rank as the biggest military attack in Europe since World War Two, bringing stiff Western sanctions on Moscow.
S&P lowered Russia's long-term foreign currency credit rating to 'BB+' from 'BBB-', and warned it could lower ratings further, after getting more clarity on the macroeconomic repercussions of the sanctions.
"In our view, the sanctions announced to date could carry significant negative implications for the Russian banking sector's ability to act as a financial intermediary for international trade, S&P said.
It also cut Ukraine's rating to 'B-' from 'B'.
Russia now has an "investment grade" rating of Baa3 from Moody's and an equivalent BBB- from Fitch, due to one of the lowest debt levels in the world at just 20% of GDP, and nearly $650 billion of currency reserves.
A downgrade, however, would lower that rating to the riskier "junk" or sub-investment grade category.
"The decision to place the ratings on review for downgrade reflects the negative credit implications for Russia's credit profile from the additional and more severe sanctions being imposed," Moody's said in a statement.
Sovereign rating reviews can take months but this time are likely to be quicker.
Moody's said its decision would factor in the scale of the conflict and the severity of additional Western sanctions, which have already hit some of Russia's top banks, military exports and members of President Vladimir Putin's inner circle.
It added it would also weigh the degree to which Russia's substantial currency reserves are able to mitigate the disruption stemming from the new sanctions and lengthy conflict.
"Moody's will look to conclude the review when these credit implications become more clear, particularly when the impact of further sanctions takes shape in the coming days or weeks," it said.
Moody's also put Ukraine's already-junk "B3" rating on review for a downgrade.
Fitch did not wait, however, and moved immediately to slash its Ukraine rating by a whole three notches to "CCC" from "B."
It explained, "There is a high likelihood of an extended period of political instability, with regime change a likely objective of President Putin, creating heightened policy uncertainty and potentially also undermining the willingness of Ukraine to repay debt."
Moody's had also warned a heavy conflict could leave Kyiv struggling to make debt payments.
Scope, a smaller European rating agency, has estimated Ukrainian government debt could jump above 90% of GDP by 2024 from about 50% now while S&P Global also warned on Friday of a spate of downgrades as a result of the war.
The International Monetary Fund is exploring all options to aid Ukraine with further financial support, said its head, Kristalina Georgieva.
Russia's central bank has beefed up its banking sector with billions in additional foreign exchange and rouble liquidity, while the government has separately pledged full-scale support to sanctions-hit companies.
It is not the first time Russia is being cut to junk. Moody’s and S&P both took similar steps in early 2015 after the annexation of Crimea and plunging oil prices caused a rouble currency crisis.
There are "serious concerns" around Russia's ability to manage the disruptive impact of new sanctions on its economy, public finances and financial system, Moody's said on Friday.
(Reporting by Marc Jones in London, Mehr Bedi and Bhargav Acharya in Bengaluru; Editing by Sam Holmes and Clarence Fernandez)