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Cleveland Cliffs 2025 Bonds Offer 6.5% Yield To Maturity

Apr. 11, 2018 8:52 AM ETCleveland-Cliffs Inc. (CLF)19 Comments
Jeremy LaKosh profile picture
Jeremy LaKosh


  • Cliffs revenues have improved from 2016.
  • Cliffs has a cash swell due to a share and debt issuance.
  • Cliffs detailed financial guidance show the company has the cash flow to support debt reduction.

Cleveland Cliffs (NYSE:CLF) shares have seen pressure as investors are hesitating to see the benefits of steel tariffs. Besides the tariffs, the company has closed on two senior note offerings and published its 10-K since I last wrote about the company's fixed income opportunity three months ago. While the 2020 bonds have eclipsed par, their return is still 5.5% to maturity. Further down the maturity timeline, the company's 2025 bonds are priced at 96 cents on the dollar, yielding 6.5% to maturity when combined with the note's 5.75% coupon. Despite the recent price improvements, investors can still get solid return from Cliffs' bonds.

Source: FINRA

Cliffs' financial performance improved markedly in 2017. Revenues improved by more than 10% to $2.33 billion. The company's gross profit also improved to over half a billion dollars, which was more than twice the 2015 amount. The company's operating income saw a similar improvement. The only downside to the Cliff's profit and loss was the $165 million charge related to a loss of restructuring debt.

Source: SEC 10-K

Cliffs' balance sheet saw some dramatic changes in 2017. The company's cash balance increased by nearly $700 million to over $1 billion. This was in part due to the new debt issuances, however, the total long-term debt increased by only $130 million to $2.3 billion. Ultimately, the company's equity deficit improved noticeably from $1.33 billion to $444 million.

Source: SEC 10-K

The main reason behind the company's strong capital structure improvement is the $661 million in common stock issued during 2017. The common share issuance was in addition to $185 million in free cash flow generated during the year. These two activities were the leading influences to the company's cash balance swell.

Source: SEC 10-K

Another positive for Cliffs bondholders is the company's lack of secured debt. Secured

This article was written by

Jeremy LaKosh profile picture
About My Writing: I am currently focused on income investing through either common shares, preferred shares, or bonds.  I will occasionally break away and write about the economy at large or a special situation involving a company I've been researching in. I target two articles per week for publication on Monday and Tuesday.About My Background: Bachelors in history/political science, Masters in Business Administration with a specialization in Finance and Economics. I enjoy numbers. I have been investing since 2000. Professionally, I am the CEO of an independent living retirement community in Illinois.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own Cleveland Cliffs 2020 bonds.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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