TEXT - S&P rates Cliffs Natural Resources notes 'BBB-'
Dec 6 - Standard & Poor's Ratings Services said today that it assigned its 'BBB-' issue-level rating to Cliffs Natural Resources Inc.'s proposed senior unsecured notes due 2018. The company is issuing the notes under its shelf registration for well-known and seasoned issuers filed on March 10, 2010. The notes will be senior unsecured obligations and will rank equally with all of Cliffs' existing and future senior unsecured indebtedness. The company intends to use the proceeds from this offering to repay a portion of its existing debts, including its $270 million and $55 million private placement notes due 2013 and 2015, respectively, as well as for general corporate purposes including repayment of amounts outstanding under its term loan due 2016 and revolving credit facility due 2017. As of Sept. 30, 2012, $922.1 million was outstanding under the term loan, and $250.0 million was outstanding under the revolving credit facility The 'BBB-' corporate credit rating and negative outlook on Cliffs reflect the combination of what we consider to be the company's "satisfactory" business risk and "intermediate" financial risk profiles. These assessments reflect the company's domestic market position in the North American iron ore market, high barriers to entry, and potential to generate significant cash flow throughout a cycle. However, our rating also incorporates the highly cyclical nature of the iron ore business (given exposure to the volatile steel industry), Cliffs' significant customer concentration, the company's relatively high-cost structure, and the high capital expenditures associated with bringing its Eastern Canadian operations fully online. We recently revised Cliffs' outlook to negative based on our view that 2012 and 2013 operating performance will be worse than we previously expected, owing to lower-than expected iron ore prices and metallurgical coal prices. Our base case scenario uses the assumptions that 2013 iron ore prices will remain around current levels of about $120 per ton. As a result, we anticipate that Cliffs will generate 2012 and 2013 EBITDA of $1.4 billion and $1.2 billion, respectively, with debt to EBITDA of 3x to 3.5x, which we consider to be weak for the current rating. Furthermore, we believe Cliffs will burn cash in 2012, and that cash flow generation in 2013 will be negligible. RELATED CRITERIA AND RESEARCH -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011. -- Key Credit Factors: Methodology And Assumptions On Risks In the Metals Industry, June 22, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Temporary contact information: Megan Johnston (917-715-3892); Marie Shmaruk RATINGS LIST Cliffs Natural Resources Inc. Corporate credit rating BBB-/Negative/-- New Rating Proposed sr unsecured notes due 2017 BBB-
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