Fitch affirms Alcoa's IDR at BBB-, outlook at stable; ratings reflect Fitch's view that earnings, cash flow generation should continue to improve with economic recovery longer term but could dip slightly in 2012 on lower metals prices, softness in Europe

NEW YORK , February 17, 2012 (press release) – Fitch Ratings has affirmed the ratings for Alcoa Inc. (NYSE:AA - News) A full list of rating actions appears at the end of this release.

The Rating Outlook is Stable.

The ratings reflect Fitch's view that earnings and cash flow generation should continue to improve with economic recovery longer term but could decline slightly in 2012 on lower metals prices and softness in Europe. Fitch expects 2012 EBITDA of at least $3 billion which, together with continued capital discipline, cost control and focus on liquidity, should result in financial leverage remaining below 3 times (x) over the next 12 months.

Fitch expects continued weakness in the construction markets to constrain the economic rebound over the next 12 - 18 months. Alcoa's guidance is that it will be free cash flow positive in 2012 after capital expenditures of $1.35 billion, $650 million cash contribution to pension funds, and $350 million investment in the Ma'aden joint venture.

Alcoa generated operating EBITDA of $3.3 billion in 2011 and free cash flow of $781 million after capital expenditures of $1.3 billion, $336 million of cash contributions to pension funds and shareholder dividends of $131 million but before Ma'aden investments of $249 million. Net new borrowing was $206 million and cash on the balance sheet at Dec. 31, 2011 was $1.9 billion. Fitch notes that the $322 million 6% notes were due Jan. 15, 2012. Pro forma for the debt repayment, cash on hand was $1.6 billion, total debt was $9.0 billion, and the $3.75 billion revolver maturing July 25, 2016 was fully available (commercial paper outstanding was $224 million as of December 31, 2011). The revolver has a covenant that limits Consolidated Indebtedness to 150% of Consolidated Net Worth.

Near-term scheduled debt maturities are: $445 million in 2012, and $549 million in 2013; $743 million in 2014; $45 million in 2015, and $26 million in 2016. Of the aggregate maturity in 2014, $575 million represents the convertible notes due March 15, 2014; the initial conversion rate was equivalent to a conversion price of approximately $6.43/share.

At Dec. 31, 2011, pension plans were under funded by $3.2 billion and the U.S. pension plans were under funded by $2.7 billion.

The Stable Ratings Outlook reflects Fitch's view that operating EBITDA will be greater than $3.0 billion in 2012; free cash flow will be positive, and cash on hand and free cash flow will be sufficient to repay current debt maturities over the next 24 months. The ratings would be on review with negative implications should liquidity deteriorate, earnings be worse than expected or total debt fail to decline. Better than anticipated earnings and debt repayment could result in a review of the Outlook with positive implications.

Fitch has affirmed the following ratings, with a Stable Outlook:

--Issuer Default Rating (IDR) at 'BBB-';

--Senior unsecured debt at 'BBB-';

--$3.25 billion revolving credit facility at 'BBB-';

--Preferred stock at 'BB';

--Short-term IDR at 'F3';

--Commercial paper at 'F3'.

Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

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