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

|About: Cliffs Natural Resources Inc. (CLF)|By:, SA News Editor

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.