Key Events for Cliffs since Its 4Q14 Earnings Release
Cliffs Natural Resources Braces for 1Q15 Loss (Part 3 of 5)
Debt refinancing
On March 30, Cliffs Natural Resources (CLF) announced the successful completion of its refinancing transactions. The company had announced a debt refinancing offer in February. It completed the exchange of $544 million of new 7.75% senior secured notes due 2020 for $675 million of previously existing notes. This deal reduced Cliffs’ debt by $130 million. This implies a reduction of 5% in net debt compared to the December 2014 levels. However, this comes at the price of a higher interest rate and a shorter debt duration.
The company stated that with the new financing structure, Cliffs is no longer subject to the covenants associated with its former revolving credit facility, such as interest coverage and secured debt-to-EBITDA tests.
The sale of chromite assets
On March 23, Cliffs agreed to sell its chromite assets in Northern Ontario to Noront Resources for $20 million. The sale consists of the chromite deposits and associated claims. Cliffs purchased these assets in 2010 for $350 million. In 2013, however, management stopped all developmental activities. Most of the asset has been written down since then. The selling of these assets is consistent with the new management’s strategy of divesting non-core assets to focus on its core US iron ore operations.
These two steps clearly demonstrate the management’s intent to focus on producing iron ore pellets to the North American steel industry, including companies like AK Steel (AKS), Arcelor Mittal (MT), and US Steel (X). These steps also show management’s intent to reduce net debt and increase liquidity in this depressed iron ore price environment. AKS and US Steel form 8.7% of the SPDR S&P Metals and Mining ETF (XME), which provides diversified exposure to the metals and mining space.
Browse this series on Market Realist:
