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Moody's changes Arconic view to negative
Moody's Investors Service said it changed Arconic Inc.'s outlook to negative from stable. Concurrently, Moody's affirmed the company's Ba2 corporate family rating, Ba2-PD probability of default rating and Ba2 senior unsecured notes rating following the company's announcement of its debt raise as part the separation of its global rolled products business segment expected to close in the second quarter of 2020. At the time of separation, Arconic Inc. will be renamed Howmet Aerospace. In addition, Arconic's speculative grade liquidity rating was upgraded to SGL-1, reflecting the expectation of a very good liquidity profile over the next twelve months.
The change in outlook was driven by uncertainty surrounding Arconic's ability to de-lever from peak level debt/EBITDA of close to 4x on completion of the separation to financial leverage more commensurate with a Ba2 rating over the next 12 months. This uncertainty is driven by a lack of clarity with respect to future financial policy and related capital allocation, as well as ambiguity regarding the duration of the halt of 737 MAX production, Moody’s said.
The company's SGL rating was upgraded to SGL-1 from SGL-2 largely due to the expectation the company will maintain a sizable undrawn revolver, ample cash balances and free cash flow generation exceeding $500 million annually.
“Although the company's operating and free cash flow profile have improved meaningfully over the past year, aggressive share repurchase activity and uncertain future financial policy underlie our view of the company's credit profile" said Gigi Adamo, a Moody's vice president, senior analyst, in a press release.
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