Moody's Places Alcoa (AA) Ratings on Review for Downgrade

September 22, 2016 4:09 PM EDT

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Moody's Investors Service, ("Moody's") placed Alcoa Inc.'s Alcoa (NYSE: AA) Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of default rating and the Ba1 rating on the company's senior unsecured debt and industrial revenue bonds under review for downgrade. The ratings at Alcoa Nederland Holding B.V. (CFR Ba3) are unchanged and not part of the review. The speculative grade liquidity rating is unchanged at SGL-1.
On Review for Downgrade: ..Issuer: Alcoa Inc.

.... Probability of Default Rating, Placed on Review for Downgrade, currently Ba1-PD

.... Corporate Family Rating, Placed on Review for Downgrade, currently Ba1

....Senior Unsecured Shelf due 2017, Placed on Review for Downgrade, currently (P)Ba1

....Pref. Stock Preferred Stock, Placed on Review for Downgrade, currently Ba2 (LGD6)

....Senior Unsecured Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ba1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba1 (LGD4)

Outlook Actions:

..Issuer: Alcoa Inc.

....Outlook, Changed To Rating Under Review From Negative

On Review for Downgrade:

..Issuer: Chelan County Development Corporation, WA

....Backed Senior Unsecured Revenue Bonds, Placed on Review for Downgrade, currently Ba1 (LGD4)

..Issuer: Iowa Finance Authority

....Backed Senior Unsecured Revenue Bonds, Placed on Review for Downgrade, currently Ba1 (LGD4)

RATINGS RATIONALE

The review reflects our expectation for weaker debt protection metrics and increased leverage following the separation of the company into two publicly traded companies, with Alcoa Inc. changing its name to Arconic, which will assume existing Alcoa bonds as the surviving entity. Arconic will include the value add components of the business including the existing Global Rolled Products, (excluding the Warrick, Indiana rolling mill and the 25.1% interest in a joint venture with Saudi Arabian Mining Company (Ma'aden), Engineered Products and Solutions and Transportation and Construction Solutions segments.

The upstream business will be spun off and Alcoa Upstream Corporation (Alcoa Corp) will hold the bauxite, alumina, aluminum, energy and cast products businesses, as well as the Warrick, Indiana mill and the Ma'aden interest. Alcoa Corp's wholly owned subsidiary, Alcoa Nederland Holding B.V. (Alcoa Nederland) is currently in the market with a $1.25 billion debt offering. Proceeds of the offering, which will initially be placed in an escrow account, will be used to fund the transfer of certain assets in connection with the separation, with the balance retained for general corporate purposes.

Pro-forma for Alcoa's debt levels at June 30, 2016, and its performance in the segments that will comprise Arconic, and assuming that Alcoa Nederland raises $1.25 billion, we estimate that leverage could be in the range of 4x to 4.75x. (including Moody's standard adjustments), although we note that debt levels at time of separation could be different than what has been used in these assumptions.

The review will focus on the final capital structure and debt levels assumed by Arconic as well as the outlook for the key markets served. Arconic has strong positions in a number of key end markets, including automotive and aerospace. However, while these markets remain strong, growth has slowed.

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.



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