Fitch downgrades Alcoa

Fitch Ratings said it downgraded Alcoa Inc.'s issuer default rating to BBB+ from A-, senior unsecured debt to BBB+ from A-, $3 billion revolving credit facilities to BBB+ from A- and preferred stock rating to BBB from BBB+.

The agency affirmed the short-term issuer default rating at F2 and commercial paper rating at F2.

The outlook is stable.

Fitch said it lowered ratings as a result of higher-than-expected debt levels and financial leverage, with leverage likely to remain above 1.5 times given share repurchases coupled with large capital expenditures.

Alcoa has been free cash flow negative but the shortfall is expected to diminish given higher aluminum prices and increased production from the Fjaardaal smelter in Iceland, the agency said. Aerospace, defense and industrial gas turbine end markets remain robust while automotive and construction demand continue to be weak.

Ratings also reflect the company's leading position in the industry, its strength in low-cost alumina production and the operating flexibility afforded by the scope of its operations, Fitch said.

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