S&P downgrades Alumina

S&P said it lowered the corporate credit rating and issue ratings on Alumina Ltd. and its related debt to BB from BBB-.

The agency also said it assigned a recovery rating of 3 to the company’s medium-term notes due in 2019 and syndicated bank loans.

The outlook is stable.

S&P also said it lowered the rating on Alumina because its new joint-venture partner Alcoa Upstream Corp. has a credit quality that is materially weaker than the previous BBB- rating on Alumina.

Alcoa Corp. will be the operator and majority owner of the assets and still represents key counterparty risk for Alumina, the agency said.

In addition, the lower-rated joint-venture partner has increased the probability for debt funding to transition from the joint-venture partner to Alcoa World Alumina and Chemicals, S&P said.

Therefore, Alumina’s leverage, including a pro rata consolidation of Alcoa World Alumina, could be higher than its current level, the agency added.

Initially, S&P said it believed the amount of debt raised would be modest, but now the agency said it believes the partnership has a greater incentive to borrow at the currently unleveraged Alcoa World Alumina operating-asset level due to the likely lower cost of funding.

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