One Down, Two to Go for Alcoa as S&P Signals No Junk for Arconic

  • S&P affirms Alcoa at BBB-, ratings to be transfered to Arconic
  • Rating decision follows Alcoa Inc.’s bond sale announcement

For Alcoa Inc. Chief Executive Officer Klaus Kleinfeld, it’s a case of one down and two to go.

On Tuesday, S&P Global Ratings affirmed Alcoa Inc. at BBB-, the lowest investment grade credit rating, as the company prepares to split into separate upstream and downstream companies to be called Alcoa Corp. and Arconic, respectively.

“Once Alcoa Inc. completes the separation and is renamed Arconic, we expect to transfer the ratings to Arconic,” S&P analysts wrote in a statement Tuesday.

S&P released the comments just hours after Alcoa said it would offer senior notes in a private placement in connection with previously announced plans for the split. While the New York-based company didn’t disclose the amount or terms, a person familiar with the transaction said it would offer $1 billion in eight-year bonds to be priced later this week.

Ratings Split

Kleinfeld plans to split off the company’s smelters and mines into a stand-alone entity later this year leaving Arconic to focus on engineered products and solutions for the auto and aviation industries. On June 29, he said the target is for Arconic to at least retain Alcoa’s ratings, which are split between one investment-grade and two junk levels.

Moody’s has a Ba1 rating on Alcoa with a negative outlook, while Fitch rates the company BB+ with a stable outlook.

In a separate statement, S&P said the new upstream company Alcoa Corp. will be assigned a BB- corporate credit rating, which is three levels below investment grade.

“We view Alcoa Corp.’s fair business risk profile and aggressive financial risk profile as weaker than Alcoa Inc.’s satisfactory business risk profile and significant financial risk profile,” S&P said.

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