Morgan Stanley: Lower iron ore prices could imperil Cliffs Natural dividend

It’s been a down day for iron miners after Morgan Stanley cut its iron ore price forecast, but the firm sees the potential for even worse damage at Cliffs Natural Resources (CLF -4.1%) because it believes lower prices imperil CLF's dividend.

Given weak pricing, Stanley believes CLF could violate its credit facility’s funded debt-to-EBITDA covenant, rising to ~4x by year-end 2014 vs. the permitted maximum of 3.5x; without a renegotiation of terms, CLF could be precluded from accessing its credit facility, which combined with reduced cash flow generation raises the risk of a dividend cut.

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Comments (5)
  • LeaveTheEgoAtTheDoor
    , contributor
    Comments (46) | Send Message
    CLF's dividend has been dead for awhile
    12 Jun 2014, 02:55 PM Reply Like
  • Douglas E. Johnston
    , contributor
    Comments (1773) | Send Message
    if the covenant is violated - likely with curent IO prices, the terms of the credit agreement specify that all dividends (inc CLV's) would be suspended. They got a reprieve last year (feb '13) but then IO prices had already rebounded from $100 to $150. This time it looks to be different with IO price likely staying low although the effect will be the same; dividend reduced with equity issued or some other form of dilution (asset fire-sale by another name). Voting in a hedge fund manager on the board will do nothing
    12 Jun 2014, 03:32 PM Reply Like
  • chunghk
    , contributor
    Comments (351) | Send Message
    CLF-Sell house @$700,000, buy @$13.77=50,835 shares x$53=$2,690,000, according to Casa's restructure plan, easily own a Hillsborough house. Easy & quick money? Thanks.
    12 Jun 2014, 05:53 PM Reply Like
  • sebrich
    , contributor
    Comments (5) | Send Message
    I kicked out all CLF stocks. I kept them too long in my depot.
    12 Jun 2014, 06:52 PM Reply Like
  • xtddd
    , contributor
    Comments (333) | Send Message
    if i follow these advices. i make little money. clf becomes increasingly attractive as it is still going down.
    13 Jun 2014, 02:26 AM Reply Like
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