Moody's cut Russia's credit rating to Ca on Sunday, the second-lowest rung of its ratings ladder, citing central bank capital controls that are likely to restrict payments on the country's foreign debt and lead to default.
Moody's said its decision to cut Russia's rating was "driven by severe concerns around Russia's willingness and ability to pay its debt obligations".
Russia's economy has been plunged into crisis as a result of harsh sanctions imposed by the West which include freezing assets of the central bank held overseas and severing several Russian banks from the SWIFT international payments systems.
The central bank last week put a temporary halt on payments and on Wednesday said it had barred coupon payments for foreign investors holding rouble-denominated sovereign debt, known as OFZs. It did not say how long the curbs would be in place.
On Sunday, the central bank said Russian creditors and those from countries that had not joined in with sanctioning the country would be paid in roubles at the exchange rate prevailing at the time of payment.
Creditors could also be paid in the currency in which the debt was issued if they obtained special permission, it said.
For creditors from other countries, payments would be deposited in roubles into a special account which would be governed by rules set by the central bank, it added.
After local OFZ holders received coupon payments, withheld from non-residents last week, focus has shifted to March 16 when Russia must pay $107 million in coupons across two Eurobonds.
Moody's said default risks had increased, and that foreign bondholders were likely to recoup only part of their investment.
"The likely recovery for investors will be in line with the historical average, commensurate with a Ca rating," it said. "At the Ca rating level, the recovery expectations are at 35 to 65% (of face value)."
Moody's and its ratings agency peers Fitch and S%P Global had scored Russia at investment-grade levels of Baa3/BBB as recently as March 1. All three have since cut their scores several notches, putting the sovereign deep into "junk" territory.
S&P rates Russia at "CCC-minus" while Fitch has it on B, with a negative outlook, meaning a further downgrade is likely.Moody's only ratings rung lower than Ca is C, which equates to Selective or Restricted Default under the Fitch and S&P Global classifications.