Moody's reviews Arconic for downgrade

Moody's Investors Service said it placed Arconic Corp.'s Ba3 corporate family rating and Ba3-PD probability of default rating under review for downgrade.

At the same time, Moody's affirmed the Ba1 rating of Arconic's first-lien senior secured notes and Ba3 rating of its second-lien senior secured notes on expectations that the debt will be repaid after the close of the transaction. The agency will withdraw the ratings on the existing debt once the notes are redeemed. The SGL-1 speculative grade liquidity rating remains unchanged.

The review follows Arconic’s announcement that it agreed to be acquired by funds managed by Apollo Global Management, Inc. in combination with a minority investment from funds managed by affiliates of Irenic Capital Management or an enterprise value of about $5.2 billion including Arconic's debt, the agency said.

Arconic's board approved the deal, which is still subject to shareholder and regulatory approvals and is expected to close in the second half of 2023. Upon closing, which is expected to trigger the change of control provision under the company's indentures, Arconic will become a privately held company. The $5.2 billion deal will be funded with $2.3 billion of equity contribution and $725 million of senior unsecured notes committed by Apollo and Irenic. The rest, under the merger agreement, will be funded by a committed debt package from certain financial institutions, consisting of a senior secured bridge facility and a senior secured term facility of up to $3.1 billion, Moody’s explained.

"The review for downgrade reflects an anticipated material increase in Arconic's leverage and change in ownership that could lead to a different financial policy and a more aggressive pursuit of strategic goals given the additional debt in the proposed capital structure and Apollo's commitment to investing significant capital in the company," said Botir Sharipov, a Moody’s vice president and senior credit officer, in a press release.

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