Cliffs Natural Resources Strengthens Its Balance Sheet
While it’s important to keep an eye on a company’s financial leverage, it becomes increasingly important to do so in today’s volatile times. Cliffs Natural Resources’ (CLF) debt escalated due to acquisitions at the peak of the cycle and subsequent write-downs, which put immense pressure on its stock price.
Interested in AKS? Don't miss the next report.
Receive e-mail alerts for new research on AKS
Cliffs Natural Resources’ new management has been trying to reduce its indebtedness since it took the reins in August 2014.
During the company’s 1Q17 earnings call, CLF’s chief financial officer, Timothy Flanagan, noted, “We made de-risking the business our number one focus, not only just reducing our overall leverage, but extending maturities, lowering our interest expense and simplifying the capital structure.”
Improving balance sheet
Cliffs Natural Resources (CLF) completed its equity and unsecured debt issuances during 1Q17. The company raised $1.2 billion in February 2017, all of which was used to strengthen the balance sheet.
In 1Q17 alone, the company reduced its total debt by $600 million, lowered the maturity wall of 2020 and 2021 by half, and reduced its annualized interest expense by $50 million. Cliffs Natural Resources had net debt of $1.3 billion at the end of 1Q17, which was a reduction of 54%.
Flanagan added, “Our work in this regard is not done, and we’ll always look for opportunities to embrace and take advantage of all parts of the cycle to improve the strength of our balance sheet.”
The company’s debt is scheduled to start maturing in 2025 and onward, giving it ample flexibility to pursue growth opportunities rather than focusing on debt reduction.
Cliffs Natural Resources (CLF) ended 1Q17 with $295 million in cash. Its total liquidity at the end of 1Q17 was $450 million, which is down quarter-over-quarter. However, this is typical of the first quarter. The company expects its free cash flow and the release of inventory to drive liquidity higher through the end of the year.
In 2017, CLF doesn’t expect any borrowings against its asset-backed lending facility.