Russian Credit Approaches Junk Status


The crisis in Russia worsened Tuesday when Standard and Poor’s (S&P) placed the nation on negative credit watch.

In a statement, S&P said that the move “stems from what we view as a rapid deterioration of Russia’s monetary flexibility and the impact of the weakening economy on its financial system.”

The organization added that there is at least a 50 percent chance that Russian credit will be reassigned to junk status within 90 days.

Russia’s rating was dropped to a BBB-, which is the lowest possible rating a country can receive while still being considered ‘investment-level’. The next step down would be ‘BB+’ or ‘BB’, which would place Russia in the oxymoronic category of ‘highest speculative grade credit rating.’

Ratings begin at AAA, which is considered to be an extremely strong capacity to meet credit obligations. From there, the scale slides to AA and A before moving into ‘BBB’, which is considered somewhat of a danger zone for a nation being dropped below investment grade.

(The above grades can also have +/- distinctions added to them—for example ‘AA+’—for the purpose of indicating what direction the credit rating is trending.)

Placing Russia on negative credit watch serves as a warning to investors that the rating is likely to be lowered in the near future. As the world’s largest single exporter of energy, Russia has felt the brunt of lowered oil prices. Continued sanctions related to the conflict in Ukraine and most recently, the implosion of the ruble, have only furthered the nation’s economic crisis.

Last month, the Russian government admitted that the country was on the verge of entering a recession at some point in 2015. As the statement from S&P mentioned, the next 90 days will go a long way towards determining whether Russia is in for another long year.


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