(QHA) -

Moody's Investors Service cut Ukraine's credit rating to its second-lowest level Tuesday, while warning that creditors faced deep losses in debt-restructuring negotiations with bondholders, VOA reports.

A statement from the credit rating agency said default on repayment of $40 billion in aid from the International Monetary Fund was "virtually" certain, as Kyiv continues preliminary talks on restructuring the majority of its outstanding eurobonds.

Ukraine, mired in a costly and deadly yearlong conflict with pro-Russian rebels near the Russian border, is seeking to cut about $15 billion from its debt-servicing costs over four years, as part of the IMF aid approved earlier this month.

Moody's said its negative outlook reflected its expectation that Ukraine's government debt and external debt levels would remain high, despite debt restructuring and ongoing economic reforms.

Ukrainian Finance Minister Natalie Jaresko told Bloomberg on Tuesday that Ukraine's economy had shrunk as much as 10 percent in the first quarter. She also said the insurgency had drawn down international reserves to a record $5.62 billion in February.