Alcoa to price $250 million five-year convertibles to yield 5.75%-6.25%, up 15%-20%

By Rebecca Melvin

New York, March 16 - Alcoa Inc. was expected to price $250 million of five-year convertibles after the close of the markets on Wednesday, according to a syndicate source Monday.

Talk was for a yield of 5.75% to 6.25% with an initial conversion premium of 15% to 20%, the source said.

Credit Suisse and Morgan Stanley & Co. Inc. are joint bookrunners of the registered offering, for which there is a 15% over-allotment option of $37.5 million.

The convertibles are non-callable for life with no puts.

Concurrently, Alcoa plans to price 150 million shares of common stock, which is expected to raise about $850 million of proceeds based on Alcoa's common stock close on March 13, according to a company news release.

Proceeds are expected to be used to repay outstanding debt under the company's senior unsecured 364-day revolving credit facility, with any remainder for general corporate purposes.

The offerings are part of a series of operational and financial actions the company is implementing to improve its cost structure and liquidity.

The operational actions will reduce costs by more than $2.4 billion annually, reduce capital expenditures an additional $1 billion in 2010, and improve working capital by $800 million in 2009.

In addition, the company is reducing its quarterly common stock dividend to $0.03 per share from $0.17 per share, saving more than $400 million annually.

Klaus Kleinfeld, president and chief executive of Alcoa, said, "Today's actions better prepare Alcoa to manage through a prolonged downturn and position the company for the future. We believe that we now have in place the strategic and operational fundamentals that will enable Alcoa to emerge even stronger when the economy recovers."

Alcoa is an aluminum company based in Pittsburgh.

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