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Announcement:

Moody's changes Alcoa's outlook to stable

02 Mar 2011

Approximately $7.3 billion of debt securities affected

New York, March 02, 2011 -- Moody's Investors Service changed the rating outlook for Alcoa Inc. (Alcoa) and its subsidiary Alcoa Trust 1 to stable from negative. At the same time, Moody's affirmed Alcoa's ratings, including the Baa3 senior unsecured rating and the Prime-3 short term rating, as well as the (P)Ba1 rating of Alcoa Trust 1's preferred stock shelf, guaranteed by Alcoa.

Alcoa's rating considers its position as one of the largest integrated producers globally, holding a commanding position in the alumina industry, a leading position as a provider of primary aluminum and important positions in a wide variety of markets served by its midstream (Flat Rolled Products) and downstream (Engineered Products and Solutions) segments. Factored into the rating is the focus the company continues to maintain on cost reduction and cost control. A meaningful level of savings has been achieved from improved efficiency and productivity in the smelting system, including the permanent idling of approximately 300,000 metric tons of capacity. This, together with a better price environment has contributed to the primary metals segment evidencing improving performance and EBITDA/ton, despite relatively flat to modestly down year-on-year volumes. Although we expect cost creep in various input costs such as energy and caustic soda, a significant portion of savings achieved in 2009 and 2010 is believed sustainable, better positioning the company for ongoing improvement in earnings and cash flow generation as the aluminum industry continues to slowly recover, particularly in the U.S., which typically accounts for at least 50% of Alcoa's revenues.

Although credit metrics currently remain outside levels for a Baa3 rating, they continue to show appropriate directional trends. In addition, Alcoa's leverage position, as measured by the debt/EBITDA ratio continues to improve not only on strengthening EBITDA, but also reflective of the reduction in absolute debt levels. We anticipate that this trend will continue in 2011 and that debt/EBITDA will end the year in the range of 3.5x, more appropriate for its rating level. The company's liquidity and modest debt maturities in 2011 are further considerations in the rating.

Alcoa's stable outlook reflects Moody's expectation that a) performance in the alumina segment will show acceptable growth in 2011 on global increases in aluminum production, b) performance in the primary metals segment will also advance, albeit modestly on strengthening demand and hence production profiles, and c) that the flat rolled and engineering products and solutions segments will also benefit from improving end market demand, particularly in aerospace, automotive and packaging. The outlook also acknowledges our view that aluminum demand and price levels will remain supportive of improving performance trends, although we expect the road to full recovery to be only gradual throughout 2011. Also incorporated in the outlook is our expectation that Alcoa will continue to manage the use of debt in its capital structure in a disciplined fashion.

An upgrade is unlikely over the next twelve to fifteen months given that the metrics currently track outside the company's rating and are expected to only come in line over this time horizon. However, should the company demonstrate sustainable debt/EBITDA of less than 3x, EBIT/interest greater than 5x and cash from operations minus dividends/debt of at least 25%; the rating could be favorably impacted.

Inability to continue to reflect improving trends, a reversal in aluminum price improvement and favorable demand trends, or a material contraction in liquidity would likely have a negative impact on the rating. Continued debt/EBITDA greater than 3.5x, EBIT/interest less than 4x and operating cash flow less dividends/debt be less than 20%, could result in negative rating impact.

The last rating action on Alcoa was March 30, 2010 when the ratings were confirmed and the outlook changed to negative from stable.

The principal methodology used in rating Alcoa was Moody's Global Mining Industry rating methodology published in May 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating methodologies sub-directory on Moody's Website.

Headquartered in New York City, New York, Alcoa is a leading global producer of alumina, primary aluminum, and downstream products. Alcoa generated revenues of $21 billion in the year ended December 31, 2010.

New York
Carol Cowan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Alcoa's outlook to stable
No Related Data.
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