Clock ticks toward Russia default after S&P downgrade

Standard & Poor’s issued a downgrade of Russia’s foreign currency rating increasing the prospect of defaulting on external loans for the first time in more than a century.

The credit rating agency issued the downgrade to “selective default” late Friday.

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Earlier in the week, Russia arranged to make foreign bond payments in rubles when they were due in dollars. 

S&P didn’t expect Russia to be able to convert the rubles into dollars within the 30-day grace period allowed.

Russian President Vladimir Putin (Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP) (AP / AP Images)

The downgrade decision was based partly on its opinion that sanctions on Russia over its invasion of Ukraine will likely be further increased.

A selective default rating is when a lender defaults on a specific payment but makes others on time, according to an S&P spokesperson.

S&P CUTS RUSSIA’S RATING TO JUNK, MOODY’S ISSUES JUNK WARNING

The U.S. Treasury blocked a transfer of a $649 million payment to holders of sovereign bonds, keeping Russia from using any of its frozen foreign currency reserves, according to Reuters.

A picture shows the Vodovzvodnaya Tower of the Kremlin (L) and the Ministry of Foreign Affairs of Russia’s building. (Photo by NATALIA KOLESNIKOVA/AFP via Getty Images) ((Photo by NATALIA KOLESNIKOVA/AFP via Getty Images) / Getty Images)

S&P and other ratings agencies had already downgraded Russia’s debt to “junk” status, deeming a default highly likely.

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The country has not defaulted on foreign debt since the Bolshevik Revolution in 1917, when the Soviet Union emerged. 

The Associated Press contributed to this report.