Moody's Raises Alcoa (AA) Rating Outlook to Positive from Stable

Moody's Investors Service changed Alcoa Inc.'s (NYSE: AA) outlook to positive from stable. At the same time, Moody's affirmed all ratings including the Ba1 corporate family rating (CFR), Ba1-PD probability of default rating, Ba1 senior unsecured notes ratings, (P)Ba1 senior unsecured shelf rating, (P)Ba1 medium term note program rating and Ba2 preferred stock rating. The SGL-1 speculative grade liquidity rating was also affirmed.

Affirmations:

.... Corporate Family Rating, Affirmed Ba1

.... Probability of Default Rating, Affirmed Ba1-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

....Multiple Seniority Shelf (Local Currency) due 2017, Affirmed (P)Ba1

....Pref. Stock Preferred Stock (Local Currency), Affirmed Ba2, LGD6

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Ba1

....Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed Ba1, LGD4

..Issuer: Chelan County Development Corporation, WA

....Senior Unsecured Revenue Bonds (Local Currency), Affirmed Ba1, LGD4

..Issuer: Iowa Finance Authority

....Senior Unsecured Revenue Bonds (Local Currency), Affirmed Ba1, LGD4

Outlook Actions:

..Issuer: Alcoa Inc.

....Outlook, Changed To Positive From Stable

The outlook change to positive acknowledges Alcoa's improving trends in earnings and debt protection metrics as evidenced by the 3.8x EBIT/interest ratio for the twelve months ended March 31, 2015 and the debt/EBITDA ratio of 3x as compared with 2x and 4x respectively for the twelve months ended December 31, 2013 (incorporating Moody's standard adjustments).The positive outlook also acknowledges the actions taken by Alcoa to continue to rationalize its refining and smelting operations to lower its cost position in its primary metals segment and the progress the company is making in increasing the value added component of its business in its mid-stream (Global Rolled Products or GRP) and down-stream (Engineered Products and Solutions or EPS) business segments. Although the GRP segment is expected to face headwinds and a decline in after tax operating income in 2015 (degree dependent on metal prices and currency rates) from the continued pressure in the can sheet market and costs associated with the qualification of products in the new Micromill process, increasing sales into the automotive market, with the Davenport, Iowa facility running at full capacity as of the end of the first quarter of 2015, is expected to mitigate the overall challenges, some of which will be short term in nature. In addition, the further improvement in volumes and value added products from the Firth Rixson acquisition and the pending acquisition of RTI International, both of which enhance Alcoa'sproduct offerings into the aerospace sector, are expected to contribute to increasing earnings and cash flow generation over the next twelve to eighteen months.

RATINGS RATIONALE

Alcoa's Ba1 CFR considers the company's ongoing transformation to a major player in light weight metals manufacturing and engineering. However, at the same time, the rating incorporates the company's leverage to the volatility in aluminum prices and premiums in its primary segment, particularly in the smelter system. Alcoa holds a commanding and competitive position in the alumina industry, a leading position as a provider of primary aluminum, as well as a leading provider of value added products in a wide variety of markets served by its GRP and EPS segments. Factored into the rating is the focus the company continues to maintain on cost reduction and cost control, as well as working capital management and productivity improvements. While there have been meaningful smelter capacity curtailments by Alcoaand others in the industry and demand fundamentals, from a physical perspective remain positive, the inventory overhang continues and new capacity and capacity restarts continue to limit the degree of improvement in the underlying aluminum price.

Although we expect cost creep in various input costs, the decrease in oil and natural gas prices is expected to benefit the overall cost performance in 2015. In addition, a significant portion of savings achieved in recent years, particularly in the smelting system, is believed sustainable, better positioning the company for improved earnings and cash flow generation over the medium to longer term, enhanced by stability and growth in the EPS segment. The company continues to focus on productivity improvements and cost savings and through the first three months of 2015 achieved $238 million in productivity gains against its annual target of $900 million. While the rating incorporates Alcoa's focus on increasing the level of value added revenues from its GRP and EPS segments and the strengthening contribution from these segments, it also considers that the upstream businesses needs continued success in moving down the cost curve, and a combination of sustained higher aluminum prices and/or premiums to achieve a material and sustainable strengthening in consolidated performance and stronger metrics relative to adjusted debt levels of $13.3 billion at March 31, 2015. The acquisition of Firth Rixson and pending acquisition of RTI International, which primarily serve the aerospace industry and strengthen Alcoa's position in the suite of products offered to this industry, is in line with Alcoa's strategic objective to increase the value added component of its business mix.

An additional consideration in the rating is the fact that Alcoa fully consolidates the Alcoa World Alumina and Chemicals (AWAC) joint venture (encompasses bauxite and alumina assets) but only holds a 60% interest.

Alcoa's solid liquidity, including its $1.2 billion cash position at March 31, 2015 and manageable near-term debt maturities are also important considerations in the rating.

The Ba1 senior unsecured debt rating, at the same level as the CFR, reflects the absence of secured debt in the capital structure.

The rating could be upgraded should Alcoa achieve a sustainable debt/EBITDA ratio of at most 3x , a sustainable EBIT/ interest ratio of at least 4.0 times and a sustainable (cash flow less dividends)/debt ratio of at least 25%. Given the expectation for continued improving earnings and cash flow generation trends, a rating downgrade is viewed as unlikely. However, should EBIT/interest fall below and be sustained lower than 2.75x and leverage deteriorate such that the debt/EBITDA ratio trends toward and is sustained above 4x downward rating pressure would develop. A material contraction in liquidity could also pressure the rating.

Headquartered in New York, New York, Alcoa is a leading global integrated aluminum producer with a focus on lightweight materials including titanium, nickel and aluminum, and engineering and manufacturing of value added products in these metals. The company continues to implement its strategic objective to provide higher value added products while at the same time reducing the cost base in its more commodity oriented business. Additionally the company is active in all major aspects of the aluminum industry including the mining of bauxite, refining into alumina, smelting, and recycling. Through its midstream and downstream segments, Global Rolled Products and Engineered Products and Solutions Alcoa provides value added products to a variety of end markets, particularly aerospace and increasingly automotive. Alcoa has a 25.1% interest in a joint venture with Saudi Arabian Mining Company (Ma'aden), which is creating a new industrial complex in Ras Al-Khair, Saudi Arabia, which will include a bauxite mine, alumina refinery, aluminum smelter and rolling mill. The smelter, with 740,000 metric tons of capacity, commenced commercial operations in July 2014 while the refinery, with about 250,000 metric tons of capacity was fully operational at the end of 2014.

For the twelve months ending March 31, 2015, Alcoa generated revenues of approximately $24.3 billion.

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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