“Alcoa Inc. (AA), the largest U.S. aluminum producer, had its credit rating cut to one level below investment grade by Moody’s Investors Service after the metal’s price fell amid a global oversupply.
The long-term rating on Alcoa’s $8.6 billion of debt was lowered by one step to Ba1 from Baa3, Moody’s said in a statement today. The outlook is stable, indicating the rating won’t be reduced again soon.
“The aluminum price has been in a downward decline since reaching post-recession highs in 2011,” Moody’s said in the statement. Strength in the automotive and aerospace industries isn’t sufficient for a “significant” recovery in profitability and Alcoa won’t achieve investment-grade metrics within Moody’s rating horizon, Moody’s said.
While Alcoa has shuttered high-cost smelting capacity, expanded profitable segments and reduced costs, slowing economic growth in China and rising global production have caused aluminum prices to fall.
“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,” Alcoa said in a separate statement.
