Fitch downgrades Alcoa

Fitch Ratings said it downgraded Alcoa Inc.'s issuer default rating, senior unsecured debt and $3.25 billion revolving credit facility to BBB- from BBB, its preferred stock to BB+ from BBB- and its short-term issuer default rating and commercial paper to F3 from F2.

The outlook is negative.

The agency said the ratings have been downgraded as a result of lower earnings coupled with higher-than-expected debt levels resulting in higher financial leverage. The severe economic downturn has sharply reduced demand for aluminum, resulting in high inventories, production curtailments, lower shipments and lower prices.

Alcoa's ratings 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, adding that liquidity will be buoyed by the $1.02 billion expected to be received in connection with Alcoa's exit from the Shining Prospect special-purpose vehicle formed together with Aluminum Corp. of China to purchase shares in Rio Tinto plc.

The total debt-to-operating EBITDA ratio was 3.2 times at Dec. 31, and the agency expects this figure to be between 4.5 times and 5.5 times in 2009.

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