Cleveland-Cliffs Secures $1.8 Billion in Senior Notes for Stelco Deal

Cleveland-Cliffs Inc. Undertakes Major Financial Move

CLEVELAND - Cleveland-Cliffs Inc. (NYSE: CLF), a leading North American steel producer, has successfully upsized and priced an ambitious offering of Senior Guaranteed Notes amounting to $1.8 billion. This announcement recently came to light, unveiling a significant step in the company's ongoing strategy. The offering is divided into two tranches: the first consists of $900 million of notes that will mature in 2029 with a 6.875% interest rate, while the second also amounts to $900 million, maturing in 2033 at a 7.375% interest rate. Both tranches will be issued at par value, signifying Cleveland-Cliffs' strong position in the market.

Guarantees and Expected Closure

As a part of this offering, the notes will be guaranteed on a senior unsecured basis by Cleveland-Cliffs' material direct and indirect wholly-owned domestic subsidiaries, with certain exceptions. It is expected that the offering will close sometime soon, pending the usual customary closing conditions.

Funding the Stelco Acquisition

A significant portion of the proceeds from this note offering will be allocated towards financing the acquisition of Stelco Holdings Inc., a deal that is set to finalize in the near future. While the successful completion of the acquisition is not a prerequisite for this offering, it does come with specific conditions. If the acquisition doesn't proceed by a set deadline in 2025, the notes will face a special mandatory redemption, which means they will be repaid at their initial issue price along with any accrued interest.

Regulatory Compliance

The notes have been offered to qualified institutional buyers and non-U.S. persons, ensuring compliance with the Securities Act of 1933 exemptions, which means they are not registered under U.S. securities laws. This indicates that they cannot be sold in the U.S. unless they meet specific regulatory requirements.

A Strong Market Position

Headquartered in Ohio, Cleveland-Cliffs is a vertically integrated steel producer, focused on value-added sheet products primarily for the automotive sector. The company employs approximately 28,000 individuals across operations in the United States and Canada, highlighting its significant market presence.

Recent Developments

Recently, Cleveland-Cliffs has made headlines with additional major developments. In an expansion of their financial strategy, the company announced intentions to issue another $1.6 billion in Senior Guaranteed Notes specifically to fund the acquired Stelco Holdings Inc. This move has already gained approval from Stelco's shareholders, adding momentum to the acquisition process.

Negotiations and Stock Performance

Cleveland-Cliffs is actively working with the Department of Energy to obtain potential funding aimed at revitalizing its Middletown Works facility in Ohio. This initiative is particularly focused on enhancing efficiency while significantly reducing carbon emissions related to production. Financial experts have also weighed in on the company’s stock, with Citi maintaining a Neutral rating, while Seaport Global Securities recently upgraded it to a Buy, reflecting a shift in investor sentiment.

Financial Highlights

In terms of financial performance, Cleveland-Cliffs reported a robust adjusted EBITDA of $323 million for the most recent quarter, alongside notable reductions in net debt. The company has also made amendments to its $4.75 billion Asset-Based Lending facility, further aligning it with the acquisition of Stelco, indicating strong fiscal management.

Investing Insights

Experts believe that Cleveland-Cliffs' strategic decision to raise $1.8 billion through Senior Guaranteed Notes is a pivotal move that reinforces its plans for acquisition. Current market analytics estimate that Cleveland-Cliffs holds a market capitalization of approximately $5.95 billion, shedding light on the scale of this debt offering.

Understanding Financial Dynamics

The financial landscape appears complex for Cleveland-Cliffs. With a high P/E ratio of 142.25, juxtaposed with a more grounded adjusted P/E ratio of 36.4 over the last twelve months, underscores potential fluctuations in earnings. Share buybacks have also been a focus, reinforcing management's confidence in the company's long-term value despite recent stock price declines. Revenue for the last twelve months stands at $21.01 billion, yet there has been a slight downturn of 4.4% noted.

Looking Ahead

Despite facing headwinds, analysts express optimism regarding ongoing profitability for Cleveland-Cliffs, even amidst these market fluctuations. The company's valuation suggests the potential for a strong free cash flow yield, which could appeal to forward-thinking investors as they navigate through volatile market conditions.

Frequently Asked Questions

1. What is the purpose of Cleveland-Cliffs' recent offer of senior notes?

The purpose is to finance a portion of the acquisition of Stelco Holdings Inc.

2. How much money is Cleveland-Cliffs raising through these notes?

Cleveland-Cliffs is raising $1.8 billion through Senior Guaranteed Notes.

3. What are the interest rates for the offered notes?

The interest rates are 6.875% for notes due in 2029 and 7.375% for notes due in 2033.

4. Are these notes available for general public purchase?

No, the notes are not available for general public purchase.

5. How is Cleveland-Cliffs performing financially?

Cleveland-Cliffs has reported a strong adjusted EBITDA and is taking steps to reduce net debt, positioning itself well in the market.

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