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S&P: Russian Klin Rayon Downgraded To 'CC/ruCC' On Limited Liquidity; Still On Watch Negative

October 30, 2008
MOSCOW (Standard & Poor's) Oct. 29, 2008--Standard & Poor's Ratings Services said today that it had lowered its long-term issuer and Russia national scale ratings on Klin Rayon to 'CC/ruCC' from 'B-/ruBBB'. The ratings remain on CreditWatch with negative implications, where they were placed on Sept. 26, 2008.

Klin Rayon is located in the Moscow Oblast (B-/Watch Neg/--; Russia national scale ruBBB-/Watch Neg/--).

"The downgrade reflects a higher-than-expected probability that Klin will not meet its financial obligations on Nov. 13, 2008, when the municipality's Russian ruble (RUR) 300 million bond comes due," said Standard & Poor's credit analyst Irina Pilman." The downgrade also reflects remaining uncertainties about the rayon's bank and budgetary loan repayments due in December 2008."

When we placed the ratings on CreditWatch last month, we expected the local government would successfully be able to refinance its debt from local banks and/or receive additional subsidies from Moscow Oblast. However, both options seem much less likely now. The rayon's free cash is not enough to repay its bond due Nov. 13, 2008.

"The CreditWatch placement may be resolved by the issuer credit rating being lowered to 'SD' and issue rating to 'D', if the bond is not paid on time. Subsequent rating actions may follow by the end of the year, based on the rayon's ability to refinance its debt and attract additional liquidity," said Ms. Pilman.
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