New York, September 05, 2017 -- Moody's Investors Service, ("Moody's") upgraded
Alcoa Nederland Holding B.V.'s Corporate Family Rating
(CFR) and Probability of Default Rating to Ba2 and Ba2-PD respectively
from Ba3 and Ba3-PD respectively. The senior unsecured notes,
guaranteed by Alcoa Corporation (Alcoa) and restricted subsidiaries were
upgraded to Ba2 from Ba3 and the Speculative Grade Liquidity rating was
upgraded to SGL-1 from SGL-2. The outlook is stable.
The upgrade acknowledges the strengthened operating profile of Alcoa,
improvement in debt protection metrics, moderate leverage (roughly
1.8x), and excellent liquidity position. Alcoa's
improved earnings and cash flow profile is driven by the strengthened
fundamentals in the aluminum markets and consequent pricing improvement
for both alumina (+ roughly 34% in the first half of 2017
versus the comparable 2016 period) and aluminum (+ roughly 15%
in the first half of 2017 versus the comparable 2016 period), as
well as continued focus on costs although cost creep is evidenced and
the company anticipates a net impact of negative $50 million in
2017. As both realized alumina and aluminum prices are on a lag
basis to price changes, we expect that Alcoa's performance
will remain strong through the balance of the year and contribute to good
cash flow generation. While alumina and aluminum prices are expected
to remain volatile, better underlying fundamentals exist on stronger
demand levels, reduced LME inventories and the expectation on the
closure of illegal and polluting capacity in China as well as the curbing
of output during the heating season.
The following summarizes today's rating action:
Upgrades:
..Issuer: Alcoa Nederland Holding B.V.
.... Probability of Default Rating,
Upgraded to Ba2-PD from Ba3-PD
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-1 from SGL-2
.... Corporate Family Rating, Upgraded
to Ba2 from Ba3
....Backed Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba2 (LGD4) from Ba3 (LGD4)
Outlook Actions:
..Issuer: Alcoa Nederland Holding B.V.
....Outlook, Remains Stable
RATINGS RATIONALE
The Ba2 CFR at Alcoa Nederland Holding B.V. (Nederland)
considers its parent's (Alcoa) position as a leading producer of
bauxite, alumina and aluminum, geographical and aluminum product
diversity, and operational quality. From a business profile
perspective, Alcoa Corp. is well positioned within its products
and markets served. Additionally, the company has a solid
cost production profile, driven by continued refocusing of its refining
and smelting system and idling/closure of higher cost facilities.
We expect the company to generate EBITDA of at least $2 billion
in 2017.
However, the CFR considers the company's exposure to essentially
a single metal commodity, as the demand for bauxite and alumina
is directly correlated to the demand for aluminum, the volatility
in the alumina and aluminum markets driven by weak global growth expectations
and industrial production levels, overcapacity, particularly
given the increase in Chinese smelting capacity, which mitigates
the positive impact of supply curtailments and closures by other producers,
supply/demand imbalances, and market sentiment.
The stable outlook incorporates the expectation that aluminum prices will
remain comfortably above 2016 levels and that the improvement in alumina
prices will hold. Additionally, the outlook contemplates
that Alcoa will remain free cash flow generative and continue to strengthen
its balance sheet.
The ratings could be upgraded should Alcoa be able to sustain EBIT margins
of at least 8%, EBIT/interest of at least 4x and (cash flow
from operations less dividends)/debt of at least 20%. The
maintenance of a conservative financial policy to absorb volatiliy in
the industry and excellent liquidity positions as well as an understanding
as to the company's growth strategy would be further considerations in
any upgrade. Ratings could be downgraded should the liquidity position
erode, EBIT/interest is 2.5x or less and (cash flow from
operations less dividends)/debt is 15% or less.
The SGL-1 speculative grade liquidity rating acknowledges the company's
excellent liquidity as evidenced by its cash position of $954 million
at June 30, 2017 and unused (except for some letter of credit issuance)
$1.5 billion secured revolving credit facility (RCF -unrated)
at Alcoa Nederland, guaranteed by Alcoa and maturing in November
2021. The RCF is secured by substantially all assets. The
RCF contains two financial covenants; Consolidated EBITDA/interest
of no less than 5x and consolidated debt/EBITDA of no more than 2.25x
(Moody's leverage ratios include our standard adjustments for pensions
and operating leases. Additionally, the company has no material
debt maturities until September 2024.
The Ba2 senior unsecured debt rating, at the same level as the CFR,
reflects the preponderance of unsecured debt in the capital structure,
given the level of unsecured notes being issued and unfunded pension obligations
relative to the $1.5 billion secured revolving credit facility.
Alcoa Nederland is a wholly owned subsidiary of Alcoa. Alcoa Corp
holds the bauxite, alumina, aluminum, cast products
and energy business as well as the rolling operations in Warrick,
Indiana and Alcoa Inc's 25.1% interest in the Ma'aden
Rolling Company. Revenues for the twelve months ended June 30,
2017 were $10.4 billion.
The principal methodology used in these ratings was Global Mining Industry
published in August 2014. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Carol Cowan
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
