Fitch Ratings on Friday downgraded its rating on Alcoa Inc. into
junk territory, citing financial strains including weak aluminum
prices.
Fitch cut the aluminum maker's rating one notch to
double-B-plus, which is in junk territory, from the investment
grade rating of triple-b-minus, and said the company's
profitability has been hampered by global oversupply in
aluminum.
Fitch also called out the company's significant pension
obligations, noting that Alcoa's aggregate pension plans were
underfunded by $3.2 billion as of Dec. 31.
However, Fitch noted that the rating outlook is stable, which
reflects "slowly improving trends" despite prolonged market
weakness.
Fitch's move comes after the aluminum maker earlier this week
reported it had swung to a first-quarter loss of $178
million--compared with a year-earlier profit of $149
million--partly due to restructuring charges and a
steeper-than-expected drop in revenue.
Alcoa's results have been stung by flagging raw aluminum prices,
driven by global oversupply.
In response, the company has cut production costs by closing
expensive smelters, reducing its smeltering capacity by 28% since
2007.
Alcoa has also shifted its focus to high-strength lightweight
aluminum products for cars and planes, two sectors the company is
banking on to bolster demand for aluminum this year.
Alcoa projects global aluminum demand will rise 7% in 2014.
Write to Maria Armental at maria.armental@wsj.com
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