How Does Cliffs’ Recent Equity Offering Impact Its Indebtedness?

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Cliffs Natural Resources announced last week that it intends to deploy the proceeds of its equity offering conducted earlier in the month towards the redemption of its January 2018 notes. [1] Total payments for the redemption of the notes equal $301 million, which include the principal amount and accrued interest. [1] The redemption of the 2018 notes will improve Cliffs’ Net Debt/EBITDA ratio by around 10%, as shown below. In addition, with the redemption of these notes, Cliffs does not have to worry about debt redemption for a while, with the remainder of the company’s debt maturing in 2020 or later. [2]

CLF Debt Reduction With Stock Offering

As a result of the improvement in the company’s indebtedness, Cliffs’ credit rating (which is currently speculative grade) could be viewed more favorably by ratings agencies. With iron ore prices plummeting over the course of the last few years and the domestic steel industry facing competition from steel imports, Cliffs’ business environment was distinctly unfavorable. However, with the imposition of antidumping duties on steel imports from several countries by U.S. authorities, the competition from these imports to the domestic steel industry is likely to dissipate, boosting the prospects of not only domestic steelmakers, but also iron ore miners which provide raw material to steelmakers. This is apparent in Cliffs’ revised 2016 shipment guidance for its U.S. Iron Ore division, reflected in our forecasts for the same.

Thus, the combination of a more favorable external environment and a stronger balance sheet should boost Cliffs’ prospects going forward.

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Have more questions about Cliffs Natural Resources? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Cliffs Natural Resources

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Notes:
  1. Cliffs Natural Resources Inc. Calls for Full Redemption of Senior Notes due January 2018, Cliffs Natural Resources [] []
  2. Cliffs Natural Resources Q2 2016 10-Q, SEC []