Moody's Investors Service on Tuesday placed Alcoa Inc's Baa3 senior unsecured and Prime-3 short term rating under review for downgrade, reflecting the headwinds facing the company due to the decline in aluminum prices. The outlook was changed to Rating Under Review From Stable.
According to the ratings agency, aluminum prices, on a sequential quarterly basis through September 30, dropped almost 22 percent. This has had an adverse impact on Alcoa's earnings performance and particularly in earnings based debt protection metrics.
Amid the continuing weak economic conditions, recovery in the aluminum industry remains slow and uneven. Moody's expects Europe's recession and sovereign debt crisis, sluggish performance in the US economy and slower growth in China to continue to hurt the industry.
Moody's said that ''We do not see a material, sustainable improvement in aluminum prices over the next several quarters and expect Alcoa's earnings performance and debt protection metrics to remain challenged.”
According to the ratings agency, while the midstream Global Flat Rolled Products and downstream Engineered Products and Solutions segments generated good after tax operating income and are expected to continue to exhibit reasonable stability in earnings, the alumina and primary metals segments remain susceptible to underperformance owing to current aluminum prices.
The review will focus on Alcoa's cost position, especially in its Alumina and Primary segments. The company's ability to improve its earnings position on its asset base and reduce debt to levels will also be watched.
Source:
http://www.steelguru.com/metals_news/Moody_assigns_Baa3_rating_to_Alcoa/296254.html
