Alcoa 2011 Annual Report Download - page 115

rolling mill companies cover total debt service requirements of $108 in principal and up to a maximum of
approximately $50 in interest per year (based on projected interest rates). At December 31, 2011 and 2010, the
combined fair value of the guarantees was $8 and was included in Other noncurrent liabilities and deferred credits on
the accompanying Consolidated Balance Sheet. Under the project financing, a downgrade of Alcoa’s credit ratings
below investment grade by at least two agencies would require Alcoa to provide a letter of credit or fund an escrow
account for a portion or all of Alcoa’s remaining equity commitment to the joint venture project in Saudi Arabia.
In late 2011, the refining and mining company entered into project financing totaling $1,992, of which $500 represents
AWAC’s 25.1% interest in the refining and mining company. In conjunction with the financing, Alcoa, on behalf of
AWAC, issued guarantees to the lenders in the event that the refining and mining company defaults on its debt service
requirements through June 2019 (Ma’aden issued similar guarantees for its 74.9% interest). Alcoa’s guarantees for the
refining and mining company cover total debt service requirements of $60 in principal and up to a maximum of
approximately $25 in interest per year (based on projected interest rates). At December 31, 2011, the combined fair
value of the guarantees was $4. In the event Alcoa would be required to make payments under the guarantees, 40% of
such amount would be contributed to Alcoa by Alumina Limited, consistent with its ownership interest in AWAC.
Under the project financing, a downgrade of Alcoa’s credit ratings below investment grade by at least two agencies
would require Alcoa to provide a letter of credit or fund an escrow account for a portion or all of Alcoa’s remaining
equity commitment to the joint venture project in Saudi Arabia.
Power for the refinery, smelter, and rolling mill will be supplied under a gas allocation from Saudi Aramco, based on
authorization of the Ministry of Petroleum and Mineral Resources of Saudi Arabia (the “Ministry of Petroleum”). The
letter authorizing the gas allocation provides for gas to be tolled and power to be supplied to the refinery, smelter, and
rolling mill from an adjacent power and water desalination plant being constructed by a company ultimately owned by
the government of Saudi Arabia, with the major tolling elements fixed at cost. The gas allocation is contingent on the
finalization of implementing contractual arrangements and on the achievement of certain milestones, as defined in the
joint venture shareholders’ agreement, and includes possible penalties if the milestones are not met, including the
following: (i) potential forfeiture of a $350 letter of credit required to be provided to the Ministry of Petroleum by
Ma’aden (with Alcoa responsible for its pro rata share) to ensure completion of the refinery, (ii) potential forfeiture of
the gas allocation if the smelter is not completed, (iii) a potential requirement for the smelter to allocate 275 kmt of
aluminum to other entities determined by the Ministry of Petroleum if the rolling mill is not constructed, and (iv) under
a new version of the gas allocation (issued in early 2011), forfeiture of a $60 letter of credit if certain auxiliary rolling
facilities are not completed.
The parties subject to the joint venture shareholders’ agreement and the SPV agreement may not sell, transfer, or
otherwise dispose of, pledge, or encumber any interests in the joint venture or SPV until certain milestones have been
met as defined in both agreements. Under the joint venture shareholders’ agreement, upon the occurrence of an
unremedied event of default by Alcoa, Ma’aden may purchase, or, upon the occurrence of an unremedied event of
default by Ma’aden, Alcoa may sell, its interest for consideration that varies depending on the time of the default.
Under the SPV agreement, upon the occurrence of an unremedied event of default by Alcoa, Alcoa’s right to receive
distributions will be suspended.
Other Investments. As of December 31, 2011 and 2010, Other investments included $92 and $93, respectively, in
exchange-traded fixed income and equity securities, which are classified as available-for-sale and are carried at fair
value with unrealized gains and losses recognized in other comprehensive income. Unrealized and realized gains and
losses related to these securities were immaterial in 2011, 2010, and 2009.
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