Alcoa’s credit rating cut to junk status in Moody’s downgrade

City A.M. Reporter
MOODY’S Investors Service cut aluminium producer Alcoa’s main credit rating to junk yesterday, citing weak prices and a tough market for the company’s primary metals business.

Stubbornly low prices have hurt Alcoa, especially its upstream business of mining bauxite, refining it into alumina and smelting alumina to produce aluminium.

“We believe Moody’s decision is a greater reflection of macroeconomic conditions and the volatility of metal prices than a true statement of the financial and operating strength of Alcoa,” the company said in a statement.

Moody’s cut Alcoa's senior unsecured debt and corporate family ratings to Ba1 from Baa3. The agency said Alcoa’s rating outlook is stable and confirmed its Ba2 preferred stock rating.

Moody’s noted Alcoa has cut costs and boosted productivity, but said key debt metrics are likely to fall short of investment-grade standards through 2013 and 2014, in part because of weakness in the aluminium industry.

Recently, Alcoa's engineered products segment, which makes wheels, aircraft parts and other goods, has been more profitable than the firm’s upstream business, which has faced low prices. This has led to speculation that Alcoa could offload raw material assets.