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Cleveland-Cliffs (CLF) Declares Pricing of Senior Notes

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Cleveland-Cliffs Inc. (CLF - Free Report) priced its earlier announced registered public offering of $275 million total principal amount of its convertible senior notes due 2025 (or up to a total of $316.25 million total principal amount of convertible notes in case the underwriters fully exercise their over-allotment option). The convertible notes will carry an interest rate of 1.5% per year, payable semi-annually in arrears on Jan 15 and Jul 15 of every year, starting Jul 15, 2018.

In a separate release, the company also declared the pricing of its earlier announced private offering of $400 million total principal amount of its senior secured notes due 2024. The secured notes will carry an annual interest rate of 4.875% and will be issued at a price of 99.347% of their principal amount.

Subject to satisfaction of customary closing conditions, both the offerings are expected to close on Dec 19.

The convertible senior notes due 2025 will mature on Jan 15, 2025, unless they are redeemed, repurchased or converted at a prior date. The initial rate of conversion will be 122.4365 common shares, par value $0.125 per share, of the company per $1,000 principal amount of convertible notes. The notes will be convertible into common shares, cash or a combination thereof, at the company’s election.  

The secured notes due 2024 will be severally, jointly, unconditionally and fully guaranteed on a senior secured basis by considerably all of Cleveland-Cliffs’ material domestic subsidiaries and will be secured by a first-priority lien on considerably all of Cleveland-Cliffs’ assets and the assets of the guarantors and a second-priority lien on the ABL Collateral (junior to a first-priority lien for the benefit of the lenders under Cleveland-Cliffs’ senior secured asset-based credit facility).

Cleveland-Cliffs plans to use the net proceeds from the notes offering along with the net proceeds from its convertible notes offering, to finance a significant portion of its hot briquetted iron (“HBI”) capital project as well as for general corporate purposes.

Shares of Cleveland-Cliffs have moved up 2.9% in the past six months, underperforming the industry’s 18.6% growth.

 


 

Cleveland-Cliffs, in October, reduced its sales volume expectation for its U.S. Iron Ore unit for 2017 by 500,000 tons to 18.5 million long tons, due to considerable reduction in pellet nomination by a large customer, which was partly offset by higher export sales. Further, the company expects iron-ore cash cost of goods sold and operating expense to be in the range of $55-$60 per long ton, which remain unchanged from previous expectations.

Cleveland-Cliffs should benefit from its pellet supply contracts with its U.S. iron ore customers which will help it to mitigate the impact of fluctuation in seaborne iron ore pricing.

The company also remains focused on de-leveraging its balance sheet. Its net debt was roughly $1.4 billion at the end of the third quarter, down from around $2 billion at the end of the year-ago quarter. Cleveland-Cliffs expects to cut net debt to below $1 billion by the end of 2017. This would lead to a reduction in its annualized interest expense.

 

Zacks Rank & Stocks to Consider

Cleveland-Cliffs currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Westlake Chemical Corporation (WLK - Free Report) , Daqo New Energy Corp. (DQ - Free Report) and Kronos Worldwide Inc. (KRO - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Westlake Chemical has an expected long-term earnings growth rate of 10.6%. Its shares have moved up 75.8% year to date.

Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have surged a whopping 155% year to date.

Kronos Worldwide has an expected long-term earnings growth rate of 5%. Its shares have rallied 128.3% year to date.

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