* Unsecured debt and corporate family ratings cut to Ba1
* Moody's says ratings outlook is stable
* Alcoa has cut costs, but low prices weigh on results
May 29 Moody's Investors Service cut aluminum
producer Alcoa Inc's main credit rating to junk on
Wednesday, citing weak prices and a tough market for the
company's primary metals business.
Stubbornly low prices have hurt Alcoa, especially its
downstream business of mining bauxite, refining it into alumina
and smelting alumina to produce aluminum.
"We believe Moody's decision is a greater reflection of
macroeconomic conditions and the volatility of metal prices than
a true statement of the financial and operating strength of
Alcoa," the company said in a statement.
Moody's cut Alcoa's senior unsecured debt and corporate
family ratings to Ba1 from Baa3. The agency said Alcoa's rating
outlook is stable and confirmed its Ba2 preferred stock rating.
Companies with lower debt ratings tend to face higher
Moody's noted Alcoa has cut costs and boosted productivity,
but said key debt metrics are likely to fall short of
investment-grade standards through 2013 and 2014, in part
because of weakness in the aluminum industry.
In recent quarters, Alcoa's engineered products segment,
which makes wheels, aircraft parts and other goods, has been
more profitable than the company's upstream business, which has
faced rock-bottom prices. That has some speculating Alcoa could
offload raw material assets.
But even as the company shuts down high-cost capacity at
facilities such as Baie-Comeau in Quebec, operations are ramping
up at Ma'aden, the $10.8 billion, 740,000 tonne per year smelter
run by a joint venture between Alcoa and Saudi Arabian Mining Co
Prices of Alcoa bonds, which mostly trade above face value,
fell after the downgrade. The 5.4 percent notes maturing in 2021
fell 0.6 cents to about 103.4 cents, boosting their yield to
4.87 percent, according to bond pricing service Trace.
In April, S&P cut its outlook for Alcoa to negative from
stable and maintained a BBB- corporate credit rating. Fitch
Ratings also revised its outlook to negative and affirmed its
own BBB- senior unsecured debt rating.