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Fitch Ratings Affirms Alcoa's Ratings; Outlook Stable

Posted on: Monday, 26 September 2005, 18:00 CDT

Fitch Ratings has affirmed the ratings of Alcoa Inc.'s senior unsecured debt at 'A', the commercial paper at 'F1', and the preferred stock at 'A-'. The Rating Outlook is Stable. About $6.3 billion in public debt is affected.

Alcoa Inc.'s (Alcoa) ratings reflect the company's leading position in the aluminum industry, its strength in low-cost alumina production, and the operating flexibility afforded by the scope of its operations. Aluminum and alumina account for about two-thirds of revenues. Aluminum prices began showing strength in earnest in the second half of 2003 and are expected to remain firm over the next 12 to 18 months. At the same time, power costs, which account for roughly 30% of the total costs of aluminum, have been on the rise as have most raw materials and consumables. Alcoa works to cut costs through process improvement and consolidation. More recently, Alcoa has been investing in added or new lower cost smelting and its refining capacity to replace older plants with unfavorable power arrangements. The company has a strong track record of taking capacity off-stream and otherwise managing its asset base during times of oversupply. Given current market conditions, Alcoa has restarted some 300,000 metric tons per year of idled primary aluminum capacity in North America this year.

Power costs will continue to constrain earnings and cash flow growth during this up-cycle. It is unlikely that there will be debt reduction given some $2.2 billion in capital spending for the year and modest acquisitions despite the sale of Elkem ASA for $869 million in cash and Alcoa's interest in Integris Metals Inc. for cash of $205 million in the first half.

Fitch expects Alcoa to continue to balance its capital requirements with its cash flow and keep total debt to EBITDA in the 2 times range over the next 12 to 18 months. Beyond that period, Fitch expects leverage to come down with increased cash flows and debt repayments.

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. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Source: Business Wire

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