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Fitch Affirms Alcoa Aluminio's IDRs at 'BBB'; Removes Rating Watch Negative

Posted on: Thursday, 2 August 2007, 12:20 CDT

Fitch Ratings has affirmed and removed from Rating Watch Negative the following ratings for Alcoa Aluminio S.A. (Aluminio):

--Local currency Issuer Default Rating (IDR) 'BBB';

--Foreign currency Issuer Default Rating (IDR) 'BBB';

--National scale rating 'AAA(bra)';

--Series 1996-1 secured export notes (SENs) due 2008 'BBB'.

The Rating Outlook for Aluminio's corporate ratings is Stable.

The ratings affirmation follows the withdrawal by Aluminio's parent company, Alcoa Inc. (Alcoa), of its offer to acquire Canadian aluminum producer Alcan Inc. (Alcan) in a transaction that would have totaled approximately $33 billion, including assumed debt. Both Alcoa and Aluminio had been placed on Rating Watch Negative on May 8, 2007 due to the expectation of higher consolidated leverage in the event Alcoa was successful in acquiring Alcan.

Aluminio's ratings reflect the company's strong financial profile. In 2006, Aluminio generated operating EBITDA of $404 million, approximately 72% greater than in 2005 due to higher aluminum prices and sales volumes after the capacity expansion of the Alumar facility. As of Dec. 31, 2006, Aluminio had total debt of $566 million, including about $331 million of off balance sheet debt pertaining to hydroelectric projects for which the company has provided a guarantee. Aluminio's leverage ratio, as measured by total debt to operating EBITDA, improved to 1.4 times (x) in 2006, compared with 2.3x in 2005.

Aluminio's ratings are further supported by the strength of its parent, Alcoa, and its strategic importance to that company. Alcoa's commitment to its largest operating subsidiary in Latin America is demonstrated by Alcoa's ownership of 100% of Aluminio's equity and approximately 60% of its outstanding SENs, totaling $110 million at year-end 2006.

Alcoa operates in more than 40 countries, including Brazil, Chile, Peru, Argentina, and Colombia in the Latin American region. Aluminio, located in Brazil, is the largest of Alcoa's Latin American subsidiaries. The Latin American region represented nearly 10% of Alcoa's consolidated after tax profits, about 90% of which were generated from Brazil. The region is also important to Alcoa's future growth. Recent proposed investments in the region total nearly $2 billion and demonstrate Alcoa's commitment to developing its strongest financially performing subsidiaries and providing operational and technical expertise.

Aluminio is one of the largest privately owned, integrated aluminum producers in Latin America. The company produces alumina, primary aluminum and related industrial chemicals, as well as fabricated aluminum products. In 2006, Aluminio's total sales volume was 362,400 tons. The company exported 175,092 tons of aluminum ingot, used 97,710 tons in downstream applications and sold 89,598 tons in the domestic market. Alcoa Inc, based in the United States and one the world's leading producers of aluminum and alumina, holds 100% of the voting stock of Aluminio.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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