Cleveland-Cliffs Declares Proposed Offering of Senior Notes

Cleveland-Cliffs Inc. CLF stated that it plans to offer $400 million total principal amount of senior notes due 2028 (unsecured) and $550 million total principal amount of senior secured notes due 2028 in separate offerings. The offering is subject to market and other conditions. Also, the company stated that the notes are exempted from the registration requirements under the Securities Act of 1933.

Cleveland-Cliffs’ material fully-owned domestic subsidiaries will provide guarantee to the unsecured notes on a senior-unsecured basis. Post the closing of the merger with AK Steel Holding Corporation AKS, the notes will be guaranteed by AK Steel along with its material fully-owned subsidiaries on a senior-unsecured basis.

For the secured notes, Cleveland-Cliffs’ material fully-owned domestic subsidiaries will provide guarantee to the notes on a senior-secured basis, following the closing of the merger mentioned earlier. Also, AK Steel Holding and its material fully-owned subsidiaries will guarantee the notes on a senior-secured basis, which is subject to certain exceptions and permitted liens.

Cleveland-Cliffs expects the offering of notes to be completed prior to the completion of the merger with AK Steel. Until the completion of the merger, the gross proceeds are expected to be deposited into an escrow account. In case the merger is not consummated on or before Jun 30, 2020, the notes will be subject to a ‘special mandatory redemption’. If this happens, Cleveland-Cliffs will redeem the notes at the ‘special mandatory redemption price’, which equals the issue price along with the accrued yield as well as accrued and unpaid interest, if any, excluding the redemption date.

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 42.7% in the past year compared with the industry’s 9.2% decline.

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 95.7% in the past year.

Sibanye has an expected long-term earnings growth rate of 20.4%. Its shares have returned 123.1% in the past year.    

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