DBRS Finalizes Pfd-3 Rating on Alcoa $1.25 Billion Preferred Share Issue

DBRS has today finalized its provisional rating of Pfd-3 with a Negative trend on the $1.250 billion aggregate principal amount of 5.125% Class B mandatory convertible preferred shares, Series 1, mandatorily convertible to Alcoa common shares October 1, 2017 (the new Alcoa preferred shares) issued by Alcoa Inc. (Alcoa or the Company) as part of the financing of the Company’s $2.85 billion Firth Rixson Limited (Firth Rixson) acquisition and related fees and expenses. DBRS provisionally rated the new Alcoa preferred shares on September 17, 2014 (see “DBRS Assigns Provisional Pfd-3 Rating to Alcoa Preferred Share Issue”).

The Firth Rixson acquisition transaction remains subject to customary conditions and receipt of regulatory approvals, and Alcoa expects the transaction to close by the end of 2014. The Company, at its option, may redeem the new Alcoa preferred shares in whole, but not in part, if, on or prior to 5:00 p.m. (New York City time) on April 1, 2015, the acquisition of the Firth Rixson business is not consummated or the purchase agreement relating to the acquisition of the Firth Rixson business is terminated, other than in connection with the consummation of the acquisition of the Firth Rixson business, and is not otherwise amended or replaced.

On June 30, 2014, DBRS confirmed Alcoa’s Issuer Rating and Senior Unsecured Debt rating of BBB, as well as the Commercial Paper rating of R-2 (middle), maintaining these ratings with a Negative trend, following the Company’s announcement that it had signed a definitive agreement to acquire Firth Rixson (see “DBRS Confirms Alcoa Ratings at BBB with Negative Trend Following Announcement of Plan to Acquire Firth Rixson for $2.9 Billion”), indicating that “… the Firth Rixson acquisition, if it is financed and closed as currently anticipated, is expected to have a neutral impact on the Company’s ratings in the near to medium term.”

At that time, Alcoa contemplated the issuance of $500 million in Alcoa common stock, plus a combination of debt and equity-content securities, to fund the remaining $2.35 billion portion of the Firth Rixson purchase price. The new Alcoa preferred shares represent the “equity-content securities” portion of the Firth Rixson acquisition financing.

Alcoa continues to be challenged to stabilize its financial metrics with what DBRS sees as a general weakness in world commodity markets, including aluminum, and heightened price volatility in the near to medium term.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Mining Industry (Primary), Rating Companies in the Industrial Products Industry and Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.