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Cleveland-Cliffs Completes Financing Ahead Of AK Steel Merger

Mar. 04, 2020 8:47 AM ETAK Steel Holding Corporation (AKS), CLF76 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Cleveland-Cliffs announces pricing of $725 million notes due 2026.
  • Previously, the company wanted to sell a mix of secured and unsecured notes due 2028, a move that was in the original merger plan.
  • The current market situation disrupted this plan, but the combined company will still have a 4-year maturity-free window in 2020-2023.

Cleveland-Cliffs (NYSE:CLF) has recently announced the pricing of $725 million of senior secured notes due 2026, a move that completes the company's refinancing efforts related to the upcoming merger with AK Steel (NYSE:AKS). As per the press release, the notes will bear interest at an annual rate of 6.75% and will be issued at a price of 98.783% of their principal amount.

Earlier, the company has announced proposed offerings of $550 million senior secured guaranteed notes due 2028 and $400 million senior unsecured guaranteed notes due 2028. These notes were supposed to finance the tender offers which were announced on February 26, 2020:

Source: Cleveland-Cliffs press release

Previously, the company made a tender offer for AK Steel's 6.375% senior notes due 2025 and 7.00% senior notes due 2027 (I wrote about it here). These notes were tendered for new Cleveland-Cliffs 6.375% senior notes due October 15, 2025, and new 7.00% senior notes due March 15, 2027.

The fact that Cleveland-Cliffs was able to place $725 million notes (at a discount) due 2026 instead of a mix of $950 million of secured and unsecured notes due 2028 means that the market was not as receptive as Cleveland-Cliffs' management hoped it would be. Still, the company was able to push legacy AK Steel maturities to 2026 with an interest rate below that of legacy AK Steel notes. Cleveland-Cliffs stated that the tender offer will be financed by the proceeds from the new notes, as well as borrowings under the new asset-backed revolving credit facility and cash on hand.

Source: original merger presentation

The merger is set to be completed on March 13, and Cleveland-Cliffs has completed its refinancing efforts - the legacy AK Steel bonds have been refinanced, and the new asset-backed credit facility has been established. Let's now look at the original plan:

This article was written by

Vladimir Zernov profile picture
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

Analyst’s Disclosure: I am/we are long CLF. 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 may trade any of the above-mentioned stocks.

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Comments (76)

Little, Einstein profile picture
On Friday, Moody's cut ArcelorMittal’s credit rating to junk, noting the giant steelmaker is vulnerable to demand loss due to coronavirus.

Well, well, let me think !!!
If MT is garbage, CLF and many others in the sector, what is ...
zerobid profile picture
CLF is already junk rated. What is your point? Listening to the CC, LG is bullish on the timeline for a recovery in auto., and bullish on HBI off-take demand. This is very controversial(state of auto demand), and LG has been wrong a lot lately, with a history of wild exaggeration... If he is right, Cliffs is certainly well positioned as a big supplier of sheet metal and specialty steels for automotive. If auto ramps slowly and remains dislocated for years, this is the last place to be as CLF will burn cash for many qrts..
Henrik Alex profile picture
LG is always bullish but has been wrong on basically everything over the past couple of quarters.
This is not done. 20% bounce has massive fade written all over it. Adding cash as we speak. Longs know the story, but WS believes a recession is coming if not already here. Earnings season is just a few weeks away and reality will set in that Q2 will be much worse than the drop in Q1. Stocks/CLF is going to be a bottom dweller for a few months. Nothing is off the table. New lows are a reasonable projection in these uncertain times. Im buying nothing until the next huge drop at least.
RickJensen profile picture
Well, good luck.
I went the other way. I'm tapped out of capital/oppo stocks and pulling any cash laying around for next week.
Panic is a wonderful opportunity. It doesn't matter nearly as much how well I did the last 10%. I've got the 100% locked in. And I'm a pig in slop.
Now it's just a matter to see if this isn't as bad as I believe the hype says, or does it get worse. It's not that deadly unless you are even older than I. So the real damage will be from the effects on earnings, which are short term (IMO).

Since I live in Florida, I make this bet several times each decade. I'm very comfortable front-loading this realignment.
The most important thing (IMO) is to not miss the boat.
Well, we got that huge drop. Here's hoping some of the $1.3T goes to Auto and the Steel that makes it. My only concern is how prepared CLF is to weather this tsunami over the next 3...6...9 months. If they are strong enough to avoid BK, the future is really bright. In for 7,350 shares at PPS of $5.34 and will be looking to buy more, likely on the other side of this valley.
I had some AKS shares what would happen today? thanks in advance
RickJensen profile picture
you now have CLF shares.
CLF ticker remains the same?
RickJensen profile picture
Sure, AKS stock goes away not CLF.
If you check they should have stopped trading.
bessaff profile picture
LG Buys 200,000 more shares and a director 10,000
Little, Einstein profile picture
The administration of the CLF has failed, in time.
With CV19, I would buy AKS in bankruptcy almost for free
RickJensen profile picture
OK, I just made another realignment, But it was for a trust I manage. Since I could not do much more for my account, I did do very well, for somebody else. It's nice to know, if it wasn't me, it went to a good cause.

I sold 6 figures of BAC and BP, I took that and went into my 3 top "favs".
F got the most, then MAXR and CLF. Any of these was institutional sized, but the F was 6 figures in shares. The rest were 5 figures in shares.

Let's see where that is a year from now.
Low of $4.40 today, it is getting laughable on how ridiculously little faith the market has in CLF.
Henrik Alex profile picture
General market isn't exactly supportive but what do CLF investors expect here? The company is buying one of its largest (and somewhat distressed) customers in a highly defensive move. There's really no way to sugarcoat the issue.
The drop did not last long. Looked like if a bot misread the news.
The bottom may not be in yet.
bessaff profile picture
And the Chinese agree. I/O on the Dallion up nearly 5% at present. They are ‘getting back to work.’ www.dce.com.cn/...
bessaff profile picture
FYI: Iron ore displays safe haven qualities in commodities rout.
So does the current CLF share price of under $5 makes AK acquisition even cheaper for CLF?
RickJensen profile picture
The payment of stock was settled on Dec. 3.
Since the payment was all stock. The .4 shares would have to decrease to a lower level for it to be "cheaper" for CLF.
It makes the stock value drop, but it doesn't affect the quantity of the stock. The value should recover, unless you get the CLF stock and liquidate (which would be incredibly stupid). Next year none of this should matter.
I don’t believe that’s correct. The merger closes on Fri so it should be .4 of the price as of the cob on Thurs I think.
RickJensen profile picture
The payment is IN STOCK.

"The AK Steel buyout will have Cleaveland-Cliffs offering shares of its own stock in exchange for AKS stock. This will have shareholders of AKS stock receiving .40 shares of CLF stock for each share that they own."

.4 shares. Done deal.
Ridiculous! The next event is going to be a going private offer from LG and some core investors. Watch out if Wilbur Ross resigns from the Admin !
Chris Lau profile picture
Hi all,
$CLF remains a watch list trading out of favor idea. Looks like the pattern broke, just as $HIMX in the tech. world sent the stock to a hammer bottom at $1.80ish.

This might happen with $CLF on COVID-19 disrupting global GDP.

Might the AKS deal consolidates supply and stabilize prices? In time, CLF stock will rise again.
RickJensen profile picture
You can throw everything out the window about patterns. Black Swans don't have patterns, they just have direction, and that is down, down, and, down.
Eventually we will head back up. So I bought CLF and don't care if it was the bottom. 5.74 was just fine. @ $15, the difference of 20 cents won't matter.
What is the change in annual interest expense for the combined entity as a result of this refinancing?
Maybe the street hates the ceo for changing his mind time after time he has no credibility anymore
Zetetic always profile picture
@Vladimir Zernov , good article, thank you. Also, bullish here over the long term. Management, LG, being a key component of my thesis.
some of this debt should and will be paid off after consumption of merger and selling of non core assets-
The point here is that being part of the sp600 has created so much pressure on this downturn of the market- which will work in reverse on a market turnaround of course-
Sir V-i-val profile picture
Surely today is the best day to buy CLF...the corona outbreak in China is a thing of the past...hence China will start to import ore again from Vale and a new infrastructure boom in China will start very soon
30% drop in two weeks is crazy.
40% is ludicrous
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