S&P downgrades Alcoa

Standard & Poor's said it lowered Alcoa Inc.'s corporate credit and senior unsecured ratings to BBB- from BBB+ and its short-term corporate credit and commercial paper ratings to A-3 from A-2.

The ratings were removed from CreditWatch with negative implications, where they were placed on Jan. 7, and the outlook is negative.

The agency said the downgrade reflects its belief that the company's credit metrics will deteriorate significantly during 2009 and, given uncertainties regarding the length and depth of the ongoing economic downturn and S&P's expectations of a long, slow recovery, improvements thereafter will likely result in credit metrics more consistent with a BBB- rating.

Although S&P feels that Alcoa has the size and scope to adjust its operations in response to market conditions and has lowered its capital spending, the agency noted that reduced capacity, suspended share repurchases, a somewhat more aggressive financial policy and capital spending initiatives over the past few years have resulted in higher debt levels entering the downturn. As a result, S&P believes measures taken to date will not likely be sufficient to improve financial metrics to levels above the low-investment-grade level during the next two to three years.

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