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Rating Action: Moody's upgrades Cleveland-Cliffs CFR to B1; outlook positiveGlobal Credit Research - 15 Apr 2021New York, April 15, 2021 -- Moody's Investors Service, ("Moody's") upgraded Cleveland-Cliffs Inc.'s (Cliffs) Corporate Family Rating (CFR) to B1 from B2, its Probability of Default Rating (PDR) to B1-PD from B2-PD, its guaranteed senior secured note rating to B1 from B2, its guaranteed senior unsecured note rating to B2 from B3 and its senior unsecured note rating to B3 from Caa1. The company's Speculative Grade Liquidity Rating remains at SGL-2 and its ratings outlook has been changed to positive from stable."The upgrade of Cleveland-Cliffs ratings reflects the materially improved steel sector fundamentals along with our expectation for material debt reduction in 2021, which will support a strong near term operating performance and sustainably stronger credit metrics." said Michael Corelli, Moody's Senior Vice President and lead analyst for Cleveland-Cliffs Inc.Upgrades:..Issuer: Cleveland-Cliffs Inc..... Corporate Family Rating, Upgraded to B1 from B2.... Probability of Default Rating, Upgraded to B1-PD from B2-PD....Gtd. Senior Secured Regular Bond/Debenture, Upgraded to B1 (LGD3) from B2 (LGD3)....Gtd. Senior Unsecured Regular Bond/Debenture, Upgraded to B2 (LGD4) from B3 (LGD4)....Senior Unsecured Regular Bond/Debenture, Upgraded to B3 (LGD5) from Caa1 (LGD5)Outlook Actions:..Issuer: Cleveland-Cliffs Inc.....Outlook, Changed To Positive From StableRATINGS RATIONALECliffs' B1 corporate family rating incorporates the company's elevated near-term financial leverage and relatively weak interest coverage due to the ABL drawings and pension liabilities added from the acquisition of the majority of ArcelorMittal's US assets in December 2020. Its rating also considers its position as the largest US flat-rolled integrated steel producer in the US with flat-rolled steel production capacity of about 16.5 million tons, and the benefits of its position as an integrated steel producer from necessary raw materials through the steel making and finishing processes. Cliffs has a strong position in the North American iron ore markets, and the start-up of its new HBI facility enables it to provide raw materials to growing domestic EAF producers given the freight cost savings relative to imported pig iron and also the option to sell this product to its own mills. Cliffs rating also reflects the benefits of its contract position, particularly with the automotive industry, which provides a good earnings base. Its performance won't benefit as much from a high steel price environment and the benefits will lag the rise in pricing due to the nature of the contracts and renegotiation periods, but this does provide downside mitigants in a falling steel price environment.Cliffs evidenced a weak operating performance in 2020 given the impact of automotive production shutdowns on the acquired AK Steel business and generally weak economic activity due to the impact of the coronavirus which resulted in weak steel demand and prices. However, its operating performance will materially strengthen in 2021 and Cliffs expects to produce about $3.5 billion in adjusted EBITDA due to a quicker than anticipated recovery in its key auto end market, along with the addition of ArcelorMittal's assets and the recent surge in steel and iron ore prices. Domestic steel prices have surged with hot rolled coil prices (HRC) at a record high above $1,300 per ton in April 2021 after declining to a 4.5-year low around $440 per ton in July 2020 due to the effects of the pandemic. The price surge has been attributable to a temporary dislocation of supply and demand, low steel inventories and rising iron ore and scrap prices. Cliffs will also benefit from historically high iron ore prices which have surged to around $170 per ton from below $100 per ton a year ago (62% Fe fines, cfr Iron ore from Qingdao).We anticipate that steel demand will ebb once inventories are replenished and supply will ramp up as productivity improves and new capacity comes online and for the worldwide supply/demand imbalance to still exist and for hot rolled coil prices to gradually decline towards their 10-year average price range of about $600 - $700 per ton. Steel prices have historically overshot to the upside and the downside for short periods of time before returning to more normalized price levels. Nevertheless, steel prices are likely to remain elevated for the remainder of 2021 with industry consolidation improving competitive dynamics and maintenance outages tightening supply further in the near term. Even if steel prices return to a more normalized historical level, Cliffs should be able to materially reduce its outstanding debt and strengthen its liquidity position this year. The company already redeemed about $320 million of its 9.875% senior secured notes due 2025 in February 2021 with the proceeds from the sale of 20 million shares in a secondary stock offering and it should be able to pay down the remainder of its revolver borrowings ($1.51 billion as of December 2020) if it meets it EBITDA guidance since it will generate substantial free cash flow this year. This will reduce its adjusted leverage ratio (debt/EBITDA) to around 2.0x and raise its interest coverage (EBIT/Interest) to about 6.0x. These metrics will be strong for the B1 corporate family rating and the company's rating could be considered for further upgrade if steel prices stabilize at a higher than historical level, it successfully integrates the ArcelorMittal assets and uses its free cash flow to pay down debt.Cliffs' Speculative Grade Liquidity rating of SGL-2 reflects the company's good liquidity profile, which is supported by an upsized $3.5 billion asset-based lending facility (ABL) and our expectation for strong free cash flow this year. The company upsized the ABL to $3.5 billion from $2.0 billion including a regular ABL tranche ($3.35 billion) and a FILO tranche ($150 million) upon closing of the ArcelorMittal USA acquisition in December 2020 to reflect the inclusion of additional receivable and inventory collateral. The company had $1.74 billion of borrowing availability on this facility which had $1.51 billion of borrowings and $247 million of letters of credit issued as of December 2020.The positive ratings outlook incorporates our expectation for a significantly improved operating performance and substantial debt reduction in 2021 that will result in credit metrics that are strong for the company's rating.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade to Cliffs ratings would require it to materially reduce its outstanding debt and sustain a leverage ratio below 3.5x through various price points, (CFO-dividends)/debt of at least 20% and maintain a good liquidity profile.Cliffs ratings could be downgraded should leverage remain at or above 5.0x or (CFO-dividends)/debt below 12.5% and it fails to maintain an adequate liquidity profile.Headquartered in Cleveland, Ohio, Cleveland-Cliffs Inc. is the largest iron ore and flat-rolled steel producer in North America with approximately 21.2 million equity tons of annual iron ore capacity and about 16.5 million tons of flat-rolled steel capacity. For the twelve months ended December 31, 2020 Cliffs had revenues of $5.3 billion.The principal methodology used in these ratings was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Michael Corelli, CFA Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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