Alcoa Investors Looking for More Answers to $13 Billion Question – by Sonja Elmquist (Bloomberg News – June 28, 2016)

Alcoa Inc. investors are hoping for more detail Wednesday on how the biggest U.S. aluminum producer will divide about $13 billion of liabilities as it prepares to split itself into two.

The question of how Alcoa’s more than $8 billion in debt and $5 billion in pension liabilities will be split among the companies is key to determining the value of the spin-offs. That will show whether Chief Executive Officer Klaus Kleinfeld can achieve his target of an investment-grade manufacturing company, renamed Arconic, and a viable aluminum-producing company retaining the Alcoa name.

Alcoa is scheduled to release before the start of regular trading Wednesday the divided companies’ legal, capital and governance structure and plans for allocating assets and liabilities. On Sept. 29, the day after the split was announced, Alcoa said it intended for the combined company’s debt to be retained by Arconic.

Alcoa is now split-rated, with Moody’s assigning it Ba1, the highest junk ranking, and S&P rating it BBB-, the lowest investment-grade. Creating an investment-grade company that keeps the parent’s debt and achieves the targets laid out by Kleinfeld won’t be easy with the price of aluminum down more than 50 percent from a 2008 peak and the split plan creating two smaller, less diverse entities.

‘In Limbo’

“With the outlook for its business if anything weaker than it was last October, I still don’t see how it can create one good junk and one investment-grade company,” Carol Levenson, an analyst at Gimme Credit, said in an e-mail on Monday.

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