Alcoa 2009 Annual Report Download - page 112

and third-party expenses for the issuance of the convertible notes were $13 and are being amortized to interest expense
over the five-year term of the convertible notes.
Interest on the convertible notes is payable semi-annually in arrears on March 15th and September 15th each year,
which commenced on September 15, 2009. If there is an event of default under the convertible notes, the principal
amount of the convertible notes, plus accrued and unpaid interest, may be declared immediately due and payable.
These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy,
insolvency, or reorganization occurs.
Alcoa does not have the right to redeem the convertible notes prior to the stated maturity date. Holders of the
convertible notes have the option to convert their notes into shares of Alcoa’s common stock at any time prior to the
close of business on the second scheduled trading day (March 13, 2014) immediately preceding the stated maturity date
(March 15, 2014). The initial conversion rate for the convertible notes is 155.4908 shares of Alcoa’s common stock per
$1,000 (in whole dollars) principal amount of notes (89,407,210 shares), equivalent to a conversion price of
approximately $6.43 per share, subject to adjustment, as defined in the convertible notes. Other than receiving cash in
lieu of fractional shares, holders do not have the option to receive cash instead of shares of common stock upon
conversion. Accrued and unpaid interest that exists upon conversion of a note will be deemed paid by the delivery of
shares of Alcoa’s common stock and no cash payment or additional shares will be given to holders.
On the issuance date of the convertible notes, the market price of Alcoa’s common stock was above the stated
conversion price of $6.43 creating a beneficial conversion option to the holders, as the convertible notes were
“in-the-money.” The beneficial conversion option is defined as a benefit provided to the holders in the form of
non-cash interest expense to the Company. As a result, Alcoa recorded a $66 increase to additional capital and a
corresponding decrease in the carrying value of the convertible notes representing the intrinsic value of the beneficial
conversion option. The $66 decrease will be amortized to interest expense over the five-year term of the convertible
notes effectively accreting the carrying value of the convertible notes to $575 by the stated maturity date.
If Alcoa undergoes a fundamental change, as defined in the convertible notes, holders may require the Company to
repurchase all or a portion of their notes at a price equal to 100% of the principal amount of the notes to be purchased
plus any accrued and unpaid interest up to, but excluding, the repurchase date. Such a repurchase will be made in cash.
The convertible notes are general unsecured obligations and rank senior in right of payment to any of Alcoa’s future
indebtedness that is expressly subordinated in right of payment to the convertible notes and equally in right of payment
with all of Alcoa’s existing and future unsecured indebtedness and liabilities that are not so subordinated. The
convertible notes effectively rank junior to any secured indebtedness of Alcoa to the extent of the value of the assets
securing such indebtedness, and are effectively subordinated to all debt and other liabilities of Alcoa’s subsidiaries.
The net proceeds from the convertible notes ($562) and the issuance of common stock (see Note R) were used to
prepay the $1,300 outstanding under Alcoa’s 364-day revolving credit facility (see below). The remaining net proceeds
were used for general corporate purposes.
In May 2009, Alumínio entered into two new loan agreements (the “Second Loans”) with BNDES (Brazil’s National
Bank for Economic and Social Development) related to the Juruti bauxite mine development and the São Luís refinery
expansion.
The first loan agreement provides for a commitment of $321 (R$750), which is divided into six subloans, and is being
used to pay for certain expenditures of the Juruti bauxite mine development. Interest on two of the subloans totaling
$257 (R$600) is a U.S. dollar rate of interest equal to the average cost incurred by BNDES in raising capital outside of
Brazil, 4.25% as of December 31, 2009, plus a weighted-average margin of 1.69%. Interest on four of the subloans
totaling $64 (R$150) is a Brazil real rate of interest equal to BNDES’ long-term interest rate, 6.00% as of
December 31, 2009, plus a weighted-average margin of 1.59%. As of December 31, 2009, Alumínio’s outstanding
borrowings were $70 (R$122) and $24 (R$41) and the weighted-average interest rate was 5.94% and 7.59% for the
subloans totaling $257 (R$600) and the subloans totaling $64 (R$150), respectively. During 2009, Alumínio repaid
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