Fitch Ratings on November 18 upgraded the City of Kyiv's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B-' from 'CC', Fitch said in a statement.

The agency also upgraded the city's National Long-Term rating to 'BBB(ukr)' from 'BB+(ukr)'.

Outlooks on the Long-Term IDRs and the National Long-Term rating are stable, the statement said.

Under EU credit rating agency (CRA) regulation, the publication of sovereign reviews (including local and regional governments) 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 it to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that it believes makes it inappropriate for the rating agency 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 will be decided in December 2016 when Fitch is to publish its LRG rating review calendar for 2017. However, in this case the deviation was caused by the city's full repayment of domestic bonds and upgrade of Ukraine's Long-Term Foreign and Local Currency IDRs.

Fitch says that the current upgrade reflects the following rating drivers and their relative weights: The upgrade of Kyiv's IDRs follows the city's full repayment of domestic bonds (series G) on November 10, 2016, ahead of originally scheduled maturity on December 19, 2016. This resolves the risk caused by Kyiv's administration previous decision to postpone the repayment of UAH1.915 billion senior unsecured domestic bonds for another 360 days.

Fitch was informed by the issuer that Ukraine's Commission on Securities and Capital Market discontinued the registration of the city's series G domestic bonds on November 10, 2016. Kyiv has no other outstanding domestic bonds left, which in the rating agency's view significantly eases financing pressure and positively affects the city's credit profile. The city's liquidity position has stabilized with UAH6.489 billion held on accounts at November 14, 2016 following the bond repayment.

Nonetheless, Fitch says, the city still has obligations to Ukraine's Ministry of Finance (MoF), which issued new debt instruments, following completion of the city's debt exchange on external bonds. According to the terms of agreement with MoF, Kyiv is making semiannual clearance payments in March and September, which Fitch treats as part of intergovernmental relations with the national government.

Fitch says its upgrade of the city's ratings also follows recent upgrade of Ukraine's sovereign ratings to 'B-', allowing the agency to reassess the city's credit profile at the same level of the sovereign ratings.

According to the statement, the city's ratings could be positively affected by the sovereign upgrade, providing it maintains a stable fiscal performance over the medium term. Conversely, negative rating action on Ukraine's ratings will be mirrored by the city's ratings. In the absence of sovereign downgrade, a material increase of indebtedness, combined with deterioration of financial flexibility would be negative for the ratings.