Ukraine's inability to fulfill a coupon payment on an existing bond prompted the US rating agency S&P to downgrade Ukraine's credit rating to "selective default" on Friday.

In a statement, S&P said, "The rating actions reflect the missed payment on the coupon of Ukraine's 2026 Eurobond," revealing its downgrade of Ukraine's credit rating to "SD/SD" from "CC/C."

"We do not expect the payment within the bond's contractual grace period of 10 business days," it stated, adding that this was based on "the passage of a Ukrainian law in mid-July that authorizes the government to temporarily suspend payments" on a few debt liabilities.

S&P's move comes after Fitch, a reputable US rating firm, downgraded Ukraine's credit rating from "CC" to "C" on July 24, placing the country just above default.

In a statement, Fitch stated that it made its decision in part because it believed that a deal Ukraine reached with certain holders of Eurobonds "marks the start of a default-like process."

The International Monetary Fund approved a $2.2 billion payout to bolster the country's budget under an existing loan deal but lowered Ukraine's economic outlook lately, citing a series of "devastating" Russian attacks against its energy infrastructure.

This comes mere weeks after Bloomberg reported Ukraine's intention to pass legislation allowing the government to freeze foreign debt payments while the country and its international creditors negotiate conditions for restructuring more than $20 billion in bonds.

The proposed law, filed by the chairman of President Volodymyr Zelensky's party, aims to allow for the suspension of payments on foreign sovereign debt and state-guaranteed obligations due to a coupon payment scheduled for August 1.

The parliamentary budget committee convened and suggested that the measure be approved by the assembly, according to chairman Danylo Hetmantsev's message on Telegram.

The clock is ticking for Ukraine and bondholders on debt restructure, as a payment freeze agreed upon 2 years ago will soon expire.

Unless a settlement was reached or a two-year moratorium was extended by the end of July, Ukraine would legally default on its obligations in September.