Alcoa 2009 Annual Report Download - page 115

In order to maintain the Credit Facility, Alcoa pays a fee of 0.125% per annum, based on Alcoa’s long-term debt
ratings as of December 31, 2009, of the total commitment.
The Credit Facility is unsecured and amounts payable under it will rank pari passu with all other unsecured,
unsubordinated indebtedness of Alcoa. Borrowings under the Credit Facility may be denominated in U.S. dollars or
euros. Loans will bear interest at (i) a base rate or (ii) a rate equal to LIBOR plus an applicable margin based on the
credit ratings of Alcoa’s outstanding senior unsecured long-term debt. The applicable margin on LIBOR loans will be
0.475% per annum based on Alcoa’s long-term debt ratings as of December 31, 2009. Loans may be prepaid without
premium or penalty, subject to customary breakage costs.
The Credit Agreement includes the following covenants, among others, (a) a leverage ratio, (b) limitations on Alcoa’s
ability to incur liens securing indebtedness for borrowed money, (c) limitations on Alcoa’s ability to consummate a
merger, consolidation or sale of all or substantially all of its assets, and (d) limitations on Alcoa’s ability to change the
nature of its business.
The obligation of Alcoa to pay amounts outstanding under the Credit Facility may be accelerated upon the occurrence
of an “Event of Default” as defined in the Credit Agreement. Such Events of Default include, among others,
(a) Alcoa’s failure to pay the principal of, or interest on, borrowings under the Credit Facility, (b) any representation or
warranty of Alcoa in the Credit Agreement proving to be materially false or misleading, (c) Alcoa’s breach of any of its
covenants contained in the Credit Agreement, and (d) the bankruptcy or insolvency of Alcoa.
In July 2008, Alcoa increased the capacity of the Credit Facility by $175 as provided for under the Credit Agreement.
In October 2008, Lehman Commercial Paper Inc. (LCPI), a lender under the Credit Agreement with $150 in
commitments, filed for bankruptcy protection under section 11 of the United States Bankruptcy Code. It is not certain
if LCPI will honor its obligations under the Credit Agreement. The total capacity of the Credit Facility, excluding
LCPI’s commitment, is $3,275.
There were no amounts outstanding under the Credit Facility at December 31, 2009 and 2008.
Short-Term Borrowings. Short-term borrowings were $176 and $478 at December 31, 2009 and 2008, respectively.
These amounts included $81 and $236 at December 31, 2009 and 2008, respectively, related to accounts payable
settlement arrangements with certain vendors and third-party intermediaries. These arrangements provide that, at the
vendor’s request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an
appropriate discount, before the scheduled payment date and Alcoa makes payment to the third-party intermediary on
the date stipulated in accordance with the commercial terms negotiated with its vendors. Alcoa records imputed interest
related to these arrangements as interest expense in the Statement of Consolidated Operations. The remaining amount
of short-term borrowings represent working capital loans at various locations globally.
During 2009, Alumínio borrowed and repaid a total of $255 in new loans with a weighted-average interest rate of
5.25% and a weighted-average maturity of 276 days from six financial institutions. The purpose of these borrowings
was to support Alumínio’s export operations over the short-term.
In January 2008, Alcoa entered into a Revolving Credit Agreement (RCA-1) with two financial institutions. RCA-1
provided a $1,000 senior unsecured revolving credit facility (RCF-1), with a stated maturity of March 28, 2008. RCA-1
contained a provision that if there were amounts borrowed under RCF-1 at the time Alcoa received the proceeds from
the sale of the Packaging and Consumer businesses, the company must use the net cash proceeds to prepay the amount
outstanding under RCF-1. Additionally, upon Alcoa’s receipt of such proceeds, the lenders’ commitments under RCF-1
would be reduced by a corresponding amount, up to the total commitments then in effect under RCF-1, regardless of
whether there was an amount outstanding under RCF-1. In February 2008, Alcoa borrowed $1,000 under RCF-1 and
used the proceeds to reduce outstanding commercial paper and for general corporate purposes. Subsequent to the
$1,000 borrowing, Alcoa completed the sale of its Packaging and Consumer businesses in February 2008 (see Note F).
As a result, Alcoa also repaid the $1,000 under RCF-1 in February 2008, and the lenders’ commitments under RCF-1
were reduced to zero effectively terminating RCA-1.
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