Steel Dynamics: 5% Capacity Growth, Incremental Loan Payment of Just 2.6%

Steel Dynamics (STLD), which is a member of our Mid Cap and Large Cap Watch Lists, is one of the top producers of carbon steel products in the U.S. via its mini-mills. Like many others, Steel Dynamics decided to take advantage of the fairly low interest rates currently available to refinance some of its debt:

Steel Dynamics, Inc. announced today that it has consummated an unsecured note offering of $500 million of 6¾% Senior Notes due 2015 (the “Notes”). The net proceeds from the Notes will be used to redeem the company’s existing $300 million 9½% Senior Unsecured Notes due 2009, to repay amounts outstanding under its senior secured revolving credit facility, to finance certain capital expenditures and for general corporate purposes.

So let’s see: It now has $500 million of debt-financed capital for which it must pay $33.75 million in annual interest expense, compared to the $300 million it used to have, on which it spent $28.5 million. The effective interest rate on the incremental $200 million is a mere 2.6%. Sounds like a good deal to us.

Furthermore, the company is not letting the money sit around. It immediately issued a second announcement:

Steel Dynamics, Inc. today announced it has reached an agreement to purchase two privately owned metals recycling facilities in eastern Tennessee. The facilities are Elizabethton Iron & Metal in Elizabethton, Tennessee, and Johnson City Iron & Metal, in Johnson City, Tennessee. Together, the two scrap yards typically process in excess of 225,000 tons of ferrous scrap per year.

The 225,000 tons adds nearly 5% to Steel Dynamics’ current capacity of 4.7 million tons.