Cliffs Natural Resources’s seized a small window of opportunity this week after the release of blowout quarterly earnings to sell new equity and debt to turbocharge its balance sheet.
Taking advantage of a 20% rally in its stock after reporting better-than-expected fourth quarter results, the company announced plans on Thursday to raise over US$1bn in the capital markets to pay down debt and extend maturities.
The company issued US$591m of shares on Thursday and was poised on Friday to sell a US$500m eight-year non-call three bond.
“I could have gone to Red, (the) Steakhouse and celebrate with steak and wine,” Cliff’s CEO Lourenco Goncalves told bond investors during a conference call on Friday morning.
“We elected to stay working and take advantage of what the market would give me for free. And that was right.”
That was all welcome news to bond investors, who saw the company’s existing bonds rally as much as five points on Friday.
Moody’s and S&P also upgraded the company’s ratings by two notches to B and B2 on Friday, praising the company’s debt management strategy and improving performance.
Cliffs plans to use proceeds from the combined sale of equity and bonds to buy back several series of its existing bonds.
It aims to retire its 8% US$218m 1.5-lien and 7.75% US$430m second lien notes due 2020 and buy back at least US$250m of its unsecured bonds due 2020 and 2021.
CFO Tim Flanagan said during the same conference call that the company also plans to retire some of its 8.25% first-lien notes using some of the proceeds from the equity offering.
The transactions will meaningfully improve the company’s credit metrics, reducing secured and total leverage by 2.1 and 1.3 turns respectively, Flanagan said. Net leverage will drop to 3.8 times.
Cliffs began sounding out investor appetite for its new bond sale on Friday morning at a yield of mid 6%s, which was later tightened to price talk of 5.75% to 6%.
Bank of America Merrill Lynch is left lead on the new bond, while Goldman Sachs led the equity sale.