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Cleveland-Cliffs Declares Pricing of Senior Secured Notes

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Cleveland-Cliffs Inc. CLF has announced the pricing of $725 million total principal amount of senior secured notes due 2026 through an offering, which is exempted from the registration requirements of the Securities Act of 1933. The senior secured notes will carry an annual interest rate of 6.75%. They will be issued at a price of 98.783% of their principal amount.

Following the closure of Cleveland-Cliffs’ merger with AK Steel Holding Corporation AKS, these notes will be guaranteed by Cleveland-Cliffs’ material fully-owned domestic subsidiaries on a senior secured basis. This also includes AK Steel and its material fully-owned subsidiaries.

The offering of senior secured notes is expected to be completed concurrently with the completion of the merger. However, if the notes offering is consummated before the merger, the gross proceeds will be deposited into an escrow account until the merger is completed.

The offering is expected to close on Mar 13, 2020 and is subject to customary closing conditions.

The notes are also subject to a ‘special mandatory redemption’ according to which the company will be required to redeem the notes at the ‘special mandatory redemption price’. This equals the issue price of the notes along with the accrued yield as well as any accrued and unpaid interest, excluding the date of redemption.

Cleveland-Cliffs plans to use the net proceeds from the offerings to repurchase earlier announced tender offers of AK Steel. This includes any and all outstanding 7.625% senior notes due 2021 and 7.5% senior secured notes due 2023 issued by AK Steel. Cleveland-Cliffs also plans to employ any remaining net proceeds from the offerings to pay any fees and expenses related to the merger and the notes offerings as well as for general corporate purposes.

Cleveland-Cliffs’ shares have plunged 48.5% in the past year compared with the industry’s 13.8% decline.

Cleveland-Cliffs’ adjusted earnings per share came in at 25 cents in fourth-quarter 2019, which beat the Zacks Consensus Estimate of 24 cents.

The company expects average iron ore prices, steel prices and pellet premiums to be $90 per metric ton, $650 per short ton and $50 per metric ton, respectively, for 2020. Based on these assumptions, it expects to generate net income of $300-$325 million and adjusted EBITDA of $550-$575 million for 2020 on a standalone basis.

Zacks Rank & Key Picks

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

Few better-ranked stocks in the basic materials space are Daqo New Energy Corp DQ and Sibanye Gold Limited SBSW, both currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has an expected long-term earnings growth rate of 29%. The company’s shares have surged 73.9% in the past year.

Sibanye has an expected long-term earnings growth rate of 20.4%. Its shares have returned 115.1% in the past year.   

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