PrefBlog

In response to Alcoa’s hostile bid for Alcan, DBRS has

placed the ratings of Alcan Inc. (Alcan or the Company) Under Review with Developing Implications … However, the financial profile of New Alcoa would be much more aggressive relative to that of stand-alone Alcan, given the debt incurred to finance the proposed acquisition. DBRS notes that Alcoa’s offer has an allocation of 20% stock and 80% cash. Accordingly, New Alcoa’s pro forma leverage (gross debt-to-capital) would be 64% versus 33% for stand-alone Alcan. Similarly, pro forma cash flow-to-total debt would be at 0.14 times for New Alcoa versus 0.56 times for stand-alone Alcan. DBRS notes that these financial metrics are very aggressive for the currently assigned ratings.

DBRS will continue to monitor the proposed acquisition. In the event that this transaction is completed based on the current structure of Alcoa’s offer, a downgrade in the ratings would likely result due to the aggressive financial profile. However, DBRS notes that the ratings in all likelihood would remain investment grade.

What with the BCE problem and the TOC problem, there soon won’t be any high quality floating rate issues of any description! Then … perhaps … a fund creating high-quality synthetic floaters will attract more attention!

This entry was posted on Monday, May 7th, 2007 at 5:25 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.