Morningstar (Nasdaq:MORN) has initiated coverage on the credit of Alcoa (NYSE:AA), staring them off with a BB+ rating.
Citing ongoing investment in upstream assets, Morningstar said while it's a good strategy in the long term, it will increase stress on its generation of free cash flow.
Morningstar also sees Alcoa heavily dependent on capital markets because of its balance sheet, which includes significant leverage. Other concerns related to credit are its huge liabilities because of the horrid Obamacare, and a big pension fund which is unfunded.
Together they make Alcoa's credit situation a tight one.
The debt load carried by Alcoa at the end of 2009 was $12.9 billion, with earnings of $120 million before EBITDA. There is little to give the idea that any of this will change soon, as aluminum prices aren't assured of increasing in price in a significant manner, especially with confirmation China is definitely continuing to work on slowing down its overheated property market in urban areas.
Morningstar said it sees the credit metrics of Alcoa improving some over the next several years, but that won't do anything to justify an upgrade to an investment-grade rating for the aluminum producer.
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