Fitch Affirms Alcoa Aluminio's IDRs at 'BBB'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings for Alcoa Aluminio S.A. (Aluminio):

--Local currency Issuer Default Rating (IDR):'BBB';

--Foreign currency IDR: 'BBB';

--National scale rating: 'AAA(bra)';

--Series 1996-1 secured export notes (SENs) due Dec. 2008: 'BBB'.

The Rating Outlook is Stable.

Aluminio's ratings reflect the company's position as a leading integrated aluminum producer in Latin America and the support of its parent, Alcoa Inc. (Alcoa). Alcoa's commitment to its largest operating subsidiary in Latin America is demonstrated by the strategic importance of the region, its ownership of 100% of Aluminio's equity, and the increasing financial support it provides to Aluminio in the form of direct loans and loan guarantees.

In the past, Aluminio has maintained a relatively low--levered capital structure. In 2007, Aluminio's total adjusted debt increased 30% to US$729 million, including about US$334 million of off balance sheet debt pertaining to hydroelectric projects for which the company has provided a guarantee. Aluminio's leverage ratio, as measured by total adjusted debt to operating EBITDA, increased to 1.6 times (x) in 2007, compared with 1.4x in 2006. In 2007, the company generated operating EBITDA of US$465 million, or about 15% more than in 2006.

In 2008, Fitch expects Aluminio's leverage ratio to increase considerably to close to 3.5x as the company plans to take on about US$1.0 billion of additional debt to fund its share of the Juruti bauxite and the Alumar alumina refinery expansion projects. The refinery is being expanded to reach 3.5 million tons of capacity in 2009 from 1.4 million tons currently. The additional output will be primarily for export. The development of the Juruti mine will provide the raw material, approximately 2.6 million tons of bauxite, for the alumina expansion project.

In April 2008, Aluminio obtained a BRL650 million loan (approximately US$370 million) from Brazil's National Bank for Economic and Social Development - BNDES, which was guaranteed by Alcoa. Later in 2008, Aluminio plans to receive another BRL500 million loan (approximately US$280 million) from BNDES which is also expected to be guaranteed by Alcoa. In addition to inter-company loans provided by subsidiaries of Alcoa, nearly 70% of Aluminio's estimated 2008 total adjusted debt obligations of US$1.7 billion will be guaranteed or provided by Alcoa, such that the credit quality of Aluminio is closely linked to that of its parent. Fitch maintains a 'BBB+' IDR for Alcoa. Absent the ownership structure and direct and indirect parent company support, Aluminio's stand-alone rating would be somewhat lower than the current rating category given the higher levels of expected leverage.

Alcoa operates in more than 40 countries, including Brazil, Chile, Peru, Argentina, and Colombia in the Latin American region. Aluminio, located in Brazil, is the largest of Alcoa's Latin American subsidiaries. The Latin American region represented nearly 10% of Alcoa's consolidated after tax profits, about 90% of which were generated from Brazil. The region is also important to Alcoa's future growth. Recent proposed investments in the region demonstrate Alcoa's commitment to developing its strongest financially performing subsidiaries and providing operational and technical expertise.

Aluminio, located in Brazil, is one of the largest privately owned, integrated aluminum producers in Latin America. The company produces alumina, primary aluminum and related industrial chemicals, as well as fabricated aluminum products. In 2007, Aluminio's total sales volume was 375,238 tons. The company exported 152,157 tons of aluminum ingot, used 91,614 tons in downstream applications and sold 131,557 tons in the domestic market. Alcoa Inc, based in the United States and one the world's leading producers of aluminum and alumina, holds 100% of the voting stock of Aluminio.

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