The company significantly upsized a looming debt flotation.
Market players are eager to lend Cleveland-Cliffs (CLF 8.63%) money, so much so that a planned debt issue was quickly and substantially upsized. That impressed the market enough to send the company’s equity skyward, and in late-session action the large steel maker’s stock was up by 9% in price. That performance was notably hotter than that of the S&P 500 index, which was rising by 0.6%.
A bigger issue
Tuesday morning before market open, Cleveland-Cliffs announced that it would float a fresh issue of senior unsecured guaranteed notes (a type of corporate bond). Then, very shortly after market close that day, it announced it had upsized the issue by nearly 40%.
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In the initial announcement, Cleveland-Cliffs said the flotation would consist of $200 million aggregate principal amount of such notes maturing in 2034. This was to be an extension of a previous issue of such securities and would pay the same interest rate of just under 7.63%.
In the follow-up to the announcement, Cleveland-Cliffs said it was boosting the aggregate principal amount to $275 million. These are to be issued at a price of almost 102.8% of their principal amount, to land at an implied yield of slightly below 7% for investors.
The company said it will use its proceeds from the issue to retire debt incurred under an asset-based lending facility.
Borrowing to grow
Owning, running, and maintaining a huge steel making operation is a vastly expensive undertaking, so debt financing is typically necessary in the industry. That, plus the fact that Cleveland-Cliffs loaded up on it significantly with its 2024 acquisition of Canadian peer Stelco has pushed its total long-term debt past $7.7 billion (as of the end of June).
The new flotation will be just a drop in that bucket, yet it shows that investors have confidence in the company to satisfy such financial obligations.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.