Alcoa outlook revised to negative by S&P on metal price drop
Alcoa Inc., the biggest U.S. aluminum producer, had its credit rating outlook revised to negative from stable by Standard & Poor's Ratings Services after a slump in the price of the metal.
At current aluminum prices, Alcoa's cash flow and debt are “well outside our expectations” for the company's BBB- corporate credit rating, the ratings company said on Friday in a statement. The rating is the lowest investment-grade level.
“The company's credit measures will remain weak at least through 2013, reflecting current weak prices, sluggish European demand, and slower-than-expected growth in China thus far this year,” S&P said.
Aluminum is the fourth-worst performer on the UBS Bloomberg CMCI index of commodities in the past five years, with a negative return of 49 percent.
Global production has exceeded demand for the past eight years, according to data compiled by Bloomberg. Growth is slowing in China, the biggest consumer of the metal.
“While we are disappointed with the change in outlook, we remain committed to maintaining our investment-grade rating and will continue to execute on our strategy and our 2013 goal of generating positive free cash flow,” Monica Orbe, an Alcoa spokeswoman, wrote in an email.
On April 8, the company reported a 59 percent increase in first-quarter net income, exceeding analysts' expectations, after it cut $247 million in costs through productivity gains and increased sales at its engineered-products division.
Still, Alcoa's rating by S&P has slipped four levels from A since 2002, during which time the company lost its position as the world's most valuable materials company to Australia's BHP Billiton Ltd. The U.K.'s Rio Tinto Group and Russian and Chinese aluminum producers took a greater share of the aluminum market over the period.
Alcoa will have earnings before interest, taxes, depreciation and amortization of $2.4 billion to $2.8 billion this year, S&P said. That would mean a debt-to-EBITDA ratio of 5.5 to 6, while keeping its current BBB- rating would require a ratio of no more than four, S&P said.
Moody's Investors Service Inc. said in December that it was putting Alcoa's $8.6 billion of debt on review for downgrade.